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What changed in Designer Brands Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Designer Brands Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+308 added−290 removedSource: 10-K (2023-03-16) vs 10-K (2022-03-21)

Top changes in Designer Brands Inc.'s 2023 10-K

308 paragraphs added · 290 removed · 207 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

56 edited+20 added−15 removed12 unchanged
Biggest changeAll associates are eligible for military pay and bereavement pay. • Voluntary benefits (long-term disability, accident, hospital indemnity, and critical illness) and flexible spending accounts are available to full-time associates to support their financial needs. • Free legal help is available to all associates in areas such as civil/criminal needs, family disputes, immigration law, landlord/tenant issues, and basic document preparation. • Free financial help, including debt counseling, lease/purchase guidance, taxes, financial planning, and college funding, is available to all associates. • Adoption assistance is available to all full-time associates with reimbursement up to $10,000 of eligible expenses for each adoption. • Free accredited, general education college courses, as well as discounted tuition offerings through multiple partner schools, is available to all associates. • Tuition reimbursement up to $5,250/year is available to all full-time associates, providing the opportunity to take classes or earn a bachelor's degree. • Discounts on DSW, American Eagle Outfitters/Aerie, and American Signature/Value City Furniture products are available to all associates. • Associate accomplishments and work anniversaries, starting with one year of service, are recognized and rewarded through our web-based "Inspire Greatness" recognition program.
Biggest changeAll associates are eligible for military pay and bereavement pay. • Voluntary benefits (long-term disability, accident, hospital indemnity, and critical illness) and flexible spending accounts are available to full-time associates to support their financial needs. • Free counseling is available to all associates, their dependents, and their family members 24/7/365, including access to licensed counselors, work/life balance support, and bereavement specialists. • Free legal help is available to all associates in areas such as civil/criminal needs, family disputes, immigration law, landlord/tenant issues, and basic document preparation. • Free financial help, including debt counseling, lease/purchase guidance, taxes, financial planning, and college funding, is available to all associates. • Adoption assistance is available to all full-time associates with reimbursement up to $10,000 of eligible exp enses for each adoption. • Free accredited, general education college courses, as well as discounted tuition offerings through multiple partner schools, are available to all associates. • Up to $5,250 in tuition reimbursement per year i s available to all full-time associates to provide the opportunity to take classes or earn a degree. • Up to seven days of free backup childcare per year is provided to all full-time associates who need emergency childcare services for any reason. • All associates are provided free access to a national resource network to locate babysitters and nannies, who have been cleared by a background check, as well as discounts on tutoring, day care centers, and pet sitters. • Discounts on DSW, American Eagle Outfitters/Aerie, and American Signature/Value City Furniture products are available to all associates. • Associate accomplishments and work anniversaries, starting with one year of service, are recognized and rewarded through our "Inspire Greatness" recognition program. 5 Table of contents TALENT DEVELOPMENT To help our associates succeed in their roles, we emphasize continuous learning and development opportunities.
Our First Cost model earns commission-based income for serving retailers as their design and buying agent while leveraging our overall design and sourcing infrastructure. In addition, we sell branded products on a direct-to-consumer e-commerce site at www.vincecamuto.com.
Our First Cost model earns commission-based income for serving retailers as their design and buying agent, while leveraging our overall design and sourcing infrastructure. In addition, we sell our branded products on a direct-to-consumer e-commerce site at www.vincecamuto.com.
We monitor and adapt as necessary to maintain our competitive position, including the following areas of focus: WORKFORCE Our key human capital management objectives are to attract, develop, and retain the highest quality talent.
We monitor and adapt as necessary to maintain our competitive position, including the following areas of focus: WORKFORCE Our key human capital management objectives are to attract, develop, advance, and retain the highest quality talent.
Retail segment operations, the majority of our inventory is shipped directly from suppliers to our distribution center in Columbus, Ohio and a West Coast facility operated by a third party, where the inventory is then processed, sorted, and shipped to one of our pool locations located throughout the country and then on to the stores.
Retail segment operations, the majority of our inventory is shipped directly from suppliers to our distribution center, which is located in Columbus, Ohio, and a West Coast facility that is operated by a third party, where the inventory is then processed, sorted, and shipped to one of our pool locations located throughout the country, and then on to the stores.
To support these objectives, our human resources programs are aimed to: • develop associates to prepare them for critical roles and leadership positions for the future; • reward and support associates through competitive pay, benefit, and perquisite programs; • enhance our culture through efforts aimed at making the workplace more engaging and inclusive; • acquire talent and facilitate internal talent mobility to create a high-performing, diverse workforce; • embrace hybrid and remote work arrangements where possible to utilize flexibility as a competitive advantage; and • evolve and invest in technology, tools, and resources to support our associates at work.
To support these objectives, our human resources programs aim to: • develop associates to prepare them for critical roles and leadership positions for the future; • reward and support associates through competitive pay, benefits, and perquisite programs; • enhance our culture through efforts aimed at making the workplace more engaging and inclusive; • acquire talent and facilitate internal talent mobility to create a high-performing, diverse workforce; • embrace hybrid and remote work arrangements where possible to utilize flexibility as a competitive advantage; and • evolve and invest in technology, tools, and resources to support our associates at work.
Not only do we strive to create positive impacts within our organization, but we aim to better the communities in which we conduct business. DBI Gives is our philanthropic community interest group whose mission is to inspire community involvement and enhance associate engagement and has three main areas of focus: 1.
Not only do we strive to create positive impacts within our organization, but we aim to better the communities in which we conduct business through DBI Gives, our philanthropic community interest group. DBI Gives' mission is to inspire community involvement and enhance associate engagement and has three main areas of focus: 1.
In addition, the countries in which our products are manufactured or from which are imported may from time to time impose additional duties, tariffs, or other restrictions on our imports or adversely modify existing restrictions.
In addition, the countries where our products are manufactured or imported from may from time to time impose additional duties, tariffs, or other restrictions on our imports or adversely modify existing restrictions.
ITEM 1. BUSINESS OVERVIEW Designer Brands Inc., originally founded as DSW Inc., is one of North America's largest designers, producers, and retailers of footwear and accessories. We operate in three reportable segments: the U.S. Retail segment, the Canada Retail segment, and the Brand Portfolio segment. The U.S.
ITEM 1. BUSINESS OVERVIEW Designer Brands Inc., originally founded as DSW Inc., is one of the world's largest designers, producers, and retailers of footwear and accessories. We operate in three reportable segments: the U.S. Retail segment, the Canada Retail segment, and the Brand Portfolio segment. The U.S.
INTELLECTUAL PROPERTY We have registered a number of trademarks, service marks, and domain names in the U.S., Canada, and internationally, including DSW®, DSW Shoe Warehouse®, and DSW Designer Shoe Warehouse®. We also have a 40% interest in ABG-Camuto, which holds the intellectual property rights of Vince Camuto®, Louise et Cie®, and others.
INTELLECTUAL PROPERTY We have registered a number of trademarks, service marks, and domain names in the U.S., Canada, and internationally, including DSW ® , DSW Shoe Warehouse ® , and DSW Designer Shoe Warehouse ® . We also have a 40% interest in ABG-Camuto, which holds the intellectual property rights of Vince Camuto ® and others.
RETAIL SEGMENTS BANNERS We offer a wide assortment of brand name dress, casual and athletic footwear and accessories for women, men and kids, with a significant number of our products geared towards athletic and kids. • DSW Designer Shoe Warehouse- Our DSW banner, which is offered both in the U.S. and in Canada, is the destination for on-trend and fashion-forward footwear and accessory brands at a great value every single day, offering a wide assortment of brand name dress, casual and athletic footwear and accessories for women, men and kids. • The Shoe Company- The Shoe Company banner in Canada offers on-trend footwear and accessory brands that target every-day family styles at a great value every single day.
RETAIL SEGMENTS BANNERS We offer a wide assortment of dress, casual, and athletic footwear and accessories for women, men and kids, with a significant number of our products geared toward athletic and kids. • DSW Designer Shoe Warehouse- Our DSW banner, which is offered both in the United States ("U.S.") and in Canada, is the destination for on-trend and fashion-forward footwear and accessory brands at a great value every single day, offering a wide assortment of dress, casual, and athletic footwear and accessories for women, men and kids. • The Shoe Company- The Shoe Company banner in Canada offers on-trend footwear and accessory brands that target every-day family styles at a great value every single day.
Formal ways for associates, on a voluntary basis, to get involved and help advance our DE&I strategy include: • BRGs are associate-led groups organized around a common diversity dimension to foster an inclusive, engaging work environment for all. • Community Interest Groups ("CIGs") are associate-led groups based on a common passion or interest to drive a sense of community and shared purpose. • Councils are associate-led groups organized to create a sense of inclusion and belonging for those who work in our stores, distribution centers, and fulfillment center.
Formal ways for associates, on a voluntary basis, to get involved include: • BRGs, which are associate-led groups organized around a common diversity dimension to foster an inclusive, engaging work environment for all. • Community Interest Groups ("CIGs"), which are associate-led groups based on a common passion or interest to drive a sense of community and shared purpose. • Councils, which are associate-led groups organized to create a sense of inclusion and belonging for those who work in our stores, distribution centers, and fulfillment center.
For the third consecutive year, Designer Brands has been recognized for its LGBTQ+ inclusion efforts with a perfect score on the Human Rights Campaign's ("HRC") Corporate Equality Index, which places us on HRC's "Best Places to Work for LGBT Equality" list.
For the fourth consecutive year, Designer Brands has been recognized for its LGBTQ+ inclusion efforts with a 100 score on the Human Rights Campaign's ("HRC") Corporate Equality Index, which places us on HRC's "Best Places to Work for LGBT Equality" list.
To this end, we have invested in pay equity processes that allow us to assess whether associates with similar roles and experience earn equal pay for 6 comparable work. Against the backdrop of our belief that equality and diversity makes our organization stronger, we continue to focus on and invest in pay equity processes.
To this end, we have invested in pay equity processes that allow us to assess whether associates with similar roles and experience earn equal pay for comparable work. Based on our belief that equality and diversity makes our organization stronger, we continue to focus on and invest in pay equity processes.
ABG-Camuto licenses the rights to certain of its trademarks in specific categories, such as footwear and handbags, to Camuto Group, which as of January 29, 2022, have seven years remaining on the initial license term, which are indefinitely renewable on five-year terms. We believe our trademarks and service marks have significant value and are important to building our name recognition.
ABG-Camuto licenses to us the rights to certain of its trademarks in specific categories, such as footwear and handbags, which, as of January 28, 2023, have six years remaining on the initial license term and are indefinitely renewable on five-year terms. We believe our trademarks and service marks have significant value and are important to building our name recognition.
Retail and Canada Retail segments are referred to as the "retail segments." 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 our direct-to-consumer e-commerce site at www.vincecamuto.com.
Retail and Canada Retail segments are referred to as the "retail segments." The Brand Portfolio segment earns revenue from the wholesale of products to retailers and international distributors, commissions for serving retailers as the design and buying agent for products under private labels (referred to as "First Cost"), and the sale of branded products through our direct-to-consumer e-commerce sites at www.vincecamuto.com and www.topoathletic.com.
This demonstrates our goals of cultivating open dialogue, expanding diversity training, sharing best practices with other companies, and engaging our Board of Directors in the evaluation of our progress.
This demonstrates our top-down approach to furthering our goals of cultivating open dialogue, expanding diversity training, sharing best practices with other companies, and engaging our Board of Directors in the evaluation of our progress.
Dental coverage is also available. • Other benefits provided to associates and their dependents who are enrolled in a medical plan include: ◦ concierge care coordinators and nurses who assist with clinical support for health conditions, locate high quality doctors, enroll in benefit plans, advocate to resolve insurance billing issues, connect to available community resources, and answer member benefit questions; ◦ unlimited telemedicine access to U.S. board-certified physicians, via phone or video conference, for general medical, dermatology, and mental health services; ◦ fertility services that provide concierge support and access to leading fertility centers of excellence across the nation.
Dental coverage is also available. • Other benefits provided to associates and their dependents who are enrolled in a medical plan include the following: ◦ Concierge care coordinators and nurses who can assist with clinical support for health conditions, locate high quality doctors, advocate to resolve insurance billing issues, connect members to available community resources, and answer member benefit questions. ◦ Free unlimited telemedicine access to U.S. board-certified physicians, via phone or video, for general medical, dermatology, and mental health services. ◦ Specialty prescription drug medications with most at no cost to enrolled associates and their dependents. ◦ Fertility services that provide concierge support and access to leading fertility centers of excellence across the nation.
Such reports are accessible at no charge through Designer Brands Inc.'s website and are made available as soon as reasonably practicable after such material is filed with or furnished to the SEC. The SEC also maintains a website that contains reports, proxy statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. 7
Such reports are accessible at no charge through our website and are made available as soon as reasonably practicable after such material is filed with or furnished to the SEC. The SEC also maintains a website that contains reports, proxy statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. 8 Table of contents
In partnership with Authentic Brands Group LLC, a global brand management and marketing company, we have a 40% stake in ABG-Camuto, LLC ("ABG-Camuto"), a joint venture that owns several intellectual property rights, including, among others, Vince Camuto and Louise et Cie. ABG-Camuto is responsible for the growth and marketing of the brands held by the joint venture.
In partnership with Authentic Brands Group LLC, a global brand management and marketing company, we have a 40% ownership interest in ABG-Camuto, a joint venture that owns the intellectual property rights of Vince Camuto and others. ABG-Camuto is responsible for the growth and marketing of the brands held by the joint venture.
The majority of our wholesale inventory is shipped directly from factories in foreign countries to our distribution center in Westampton, New Jersey, where the inventory is then processed, sorted, and provided to our customers' shipping carriers.
The majority of our wholesale inventory is shipped directly from factories in foreign countries to our East Coast Logistics Center, where the inventory is then processed, sorted, and provided to our customers' shipping carriers.
No group is exclusive; all groups are open to any associate who wants to join, and associates can be members of as many groups as they want. Our BRGs, CIGs, and Councils provide a unique strategic perspective of shared experience, background, and allyship, while promoting diversity in our workplace and community.
All groups are inclusive and open to any associate who wants to join. Associates can be members of as many groups as they want. Our BRGs, CIGs, and Councils provide a unique strategic perspective based on shared experience, background, and allyship, while promoting diversity in our workplace and community in alignment with our business goals.
As of January 29, 2022, we employed approximately 13,500 people worldwide, of which approximately 11,600 are employed in the U.S. TOTAL REWARDS To remain an employer of choice and maintain the strength of our workforce, we continually assess the current business environment and labor market to refine our compensation practices, benefit programs, and other associate resources.
As of January 28, 2023, we employed approximately 14,000 people worldwide, 12,000 of whom are employed in the U.S. TOTAL REWARDS To remain an employer of choice and maintain the strength of our workforce, we continually assess the current business environment and labor market to refine our compensation practices, benefit programs, and other associate resources.
We believe that our continued focus on frequent and constructive performance feedback, talent reviews, succession planning, and retention, have contributed to a strong internal promotion rate. PHILANTHROPY THROUGH DBI GIVES The Company is committed to good corporate citizenship.
We invest resources in professional development and growth as a means of improving associate performance, engagement, and retention. We believe that our continued focus on frequent and constructive performance feedback, talent reviews, succession planning, and retention, have contributed to a strong internal promotion rate. PHILANTHROPY THROUGH DBI GIVES The Company is committed to good corporate citizenship.
Empowerment - Support organizations that prioritize empowerment and build self-confidence without discrimination. 2. Diversity, Equity & Inclusion - Support organizations whose key constituents align with the diversity dimensions represented by our Business Resource Groups ("BRGs"). 3. Community - The places where our associates live and work mean everything to us.
Empowerment - Support organizations that prioritize empowerment and build self-confidence without discrimination. 2. Diversity, Equity & Inclusion - Support organizations whose key constituents align with the diversity dimensions represented by our Business Resource Groups ("BRGs"). 3.
As a result, we support the organizations that put our local communities first and provide opportunities for our associates to give back through volunteering and donations. 5 DBI Gives has three primary areas of partnership: 1.
Community - As the places where our associates live and work mean everything to us, we support the organizations that put our local communities first and provide opportunities for our associates to give back through volunteering and donations. DBI Gives has three primary areas of partnership: 1.
The following table presents the number of members enrolled in our loyalty programs that have made a purchase over the prior two years and the percentage of retail segments' net sales generated from these members: January 29, 2022 January 30, 2021 Number of VIP members (in thousands) 28,175 28,614 Percentage of retail segments' net sales generated from VIP members 87 % 84 % DISTRIBUTION AND FULFILLMENT For our U.S.
The following table presents the number of members enrolled in our loyalty programs that have made a purchase over the prior two years and the percentage of retail segments' net sales generated from these members: 2022 2021 Number of VIP members at end of fiscal year (in millions) 32.1 28.2 Percentage of retail segments' net sales generated from VIP members 89 % 87 % DISTRIBUTION AND FULFILLMENT For our U.S.
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.
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.
Designer Brands has also been recognized by Forbes as one of "The Best Employers for Women" and "The Best Employers for Diversity." We believe that paying our people fairly, regardless of gender, race, or any other status, enables us to deliver on our goal of creating an inclusive environment where we can all be ourselves, contribute ideas and do our best work.
We believe that paying our people fairly, regardless of gender, race, ethnicity, or any other status, enables us to deliver on our goal of creating an inclusive environment where we can all be ourselves, contribute ideas and do our best work.
One of our core strategies is to invest in and support our associates who are key to differentiating our products and experiences in the competitive footwear market.
Our associates strive every day to create a welcoming and inclusive environment for themselves and our customers. One of our core strategies is to invest in and support our associates who are key to differentiating our products and experiences in the competitive footwear market.
In addition to Company-led surveys, leaders are encouraged to conduct "skip level" touch bases, host round table chats, and conduct follow-up activities to better understand associate feedback.
Results of the surveys are measured and analyzed with a goal of enhancing the associate experience, strengthening engagement and retention, and driving change. In addition to Company-led surveys, leaders are encouraged to conduct "skip level" touch bases, host round table chats, and conduct follow-up activities to better understand associate feedback.
This practice was especially crucial in 2021 as we worked to mitigate the ongoing challenging labor market. We have a history of investing in our workforce and offer comprehensive, relevant, and innovative benefits to eligible associates in the U.S.
We have a history of investing in our workforce and offer comprehensive, relevant, and innovative benefits to eligible associates in the U.S.
We compete against a diverse group of manufacturers and retailers, including department stores, mall-based shoe stores, national chains, independent shoe retailers, single-brand specialty retailers, online shoe retailers, brand-oriented discounters, multi-channel specialty retailers, and brand suppliers.
We compete against a diverse group of manufacturers and retailers, including department stores, mall-based shoe stores, national chains, independent shoe retailers, single-brand specialty retailers, online shoe retailers, brand-oriented discounters, multi-channel specialty retailers, and brand suppliers. In addition, our wholesale retailer customers sell shoes purchased from competing footwear suppliers with brands that are well known.
Hometown Partnerships - From annual United Way fundraisers, American Red Cross blood drives, local nonprofit partnerships, and associate volunteering efforts, we always look for ways to help and better the communities in which we operate. In 2021, we received the Dale.
We support Two Ten with corporate financial donations and subject matter expertise to continue to enrich their community program offerings. 3. Hometown Partnerships - From annual United Way fundraisers, American Red Cross blood drives, local nonprofit partnerships, and associate volunteering efforts, we always look for ways to support and better the communities in which we operate.
Our fiscal year ends on the Saturday nearest to January 31. References to a fiscal year (e.g., "2021") 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, but occasionally will contain an additional week resulting in a 53-week fiscal year.
This reporting schedule is followed by many national retail companies and typically results in a 52-week fiscal year, but occasionally will contain an additional week resulting in a 53-week fiscal year (including 2023).
Refer to Note 2 , Revenue , of the Consolidated Financial Statements of this Form 10-K for the Brand Portfolio segments' total net sales attributable to each channel.
Refer to Note 3 , Revenue , of the Consolidated Financial Statements of this Form 10-K, for the Brand Portfolio segment's total net sales attributable to each channel. The Brand Portfolio segment has four customers that make up approximately 53% of its total net sales, excluding intersegment net sales.
Our inventory can also be shipped directly from our fulfillment center, also located in Columbus, Ohio, and supported by a third-party service provider, to our customers. For our Canada Retail segment, we engage a logistics service provider to receive and distribute inventory to our stores.
Our inventory can also be shipped directly to our customers from our East Coast Logistics Center . For our Canada Retail segment, we engage a logistics service provider to receive and distribute inventory to our stores. Through our ship-from-store capability, both in the U.S. and in Canada, inventory is shipped directly from our stores to customers.
SOLES4SOULS - Soles4Souls creates sustainable jobs and provides relief through the distribution of shoes and clothing around the world, while keeping them out of landfills and giving shoes and garments a second life.
Soles4Souls - Soles4Souls creates sustainable jobs and provides relief through the distribution of shoes and clothing around the world, while giving shoes and garments a second life and keeping them out of landfills. Since partnering with Soles4Souls in 2018, we are proud to have donated over 7 million pairs of shoes, including 1.6 million pairs donated in 2022.
Compensation Related- • We strive to provide market competitive wages and salaries, targeting the middle of the market in most cases. • We establish a minimum starting pay rate for each U.S. store that exceeds applicable minimum wage requirements. • Our incentive plans provide additional cash compensation upon the achievement of results that exceed defined Company goals and are available to eligible store management, distribution centers, and corporate support center associates. • We provide stock-based, long-term incentives for senior executives through the director level that align with the interests of shareholders. • We provide retirement benefits through our 401(k) plan, with employer matching contributions up to 4% of associate contributions. • In 2021, we rewarded our frontline store associates with three separate discretionary bonuses to express appreciation for their dedication and perseverance through the ongoing challenges precipitated by the pandemic.
Compensation • We strive to provide market competitive wages and salaries, targeting the middle of the market in most cases. • We establish a minimum starting pay rate for each U.S. store that exceeds applicable minimum wage requirements. • To compete for local distribution center talent, we provide a peak season incentive bonus and continually monitor local pay practices. • Our incentive plans provide additional cash compensation upon the achievement of results that exceed defined Company goals and are available to eligible store management, distribution center, and corporate support center associates. • We provide stock-based, long-term incentives for senior executives through the director level that align with the interests of shareholders. • We provide retirement benefits through our 401(k) plan, with employer matching contributions up to 4% of associate contributions. 4 Table of contents Health & Wellness • For most of 2022, we continued the COVID-19 paid leave policy that provided up to one week of pay for associates who contracted the virus, were involuntarily quarantined, were experiencing side effects from obtaining a vaccine, or were without work due to changes in store hours because of direct or indirect impacts of the virus.
We believe: • Diversity is the celebration of the ways we are alike, as well as unique. • Equity compels us to be fair, while also recognizing the need to treat others differently to mitigate the risk of inadvertently perpetuating systemic barriers. • Inclusion is the act of ensuring our differences are not only acknowledged, but also welcomed and valued.
DIVERSITY, EQUITY, AND INCLUSION ("DE&I") We support diversity, equity, and inclusion and believe that: • diversity is the celebration of the ways we are alike and different, as well as unique; • equity compels us to be fair, while also recognizing the need to treat others differently to mitigate the risk of inadvertently perpetuating systemic barriers; and • inclusion is the act of ensuring our differences are welcomed, valued, respected, and heard. 6 Table of contents We strive to inspire self-expression, authenticity, and empowerment to drive the best possible experiences for our associates, customers, and communities in alignment with our business objectives.
To further meet customer demand of how they receive products, we provide our customers options to Buy Online Pick Up in Store, Buy Online Ship to Store, and Curbside Pickup in the majority of our locations. Likewise, returns may be shipped to us or brought back to any of our locations.
Our order routing optimization system determines the best location to fulfill digitally-demanded products, which allows us to optimize our operating profit. To further meet customer demand of how they receive products, we provide our customers options to Buy Online Pick Up in Store, Buy Online Ship to Store, and Curbside Pickup in the majority of our locations.
AVAILABLE INFORMATION Information about Designer Brands Inc., including its reports filed with or furnished to the Securities and Exchange Commission ("SEC"), is available through Designer Brands Inc.'s website at www.designerbrands.com.
Our seasonal results of operations may fluctuate based on global economic conditions, changes in weather conditions, and our customers' interest in new seasonal styles. AVAILABLE IN FORMATION Information about Designer Brands, including its reports filed with or furnished to the Securities and Exchange Commission ("SEC"), is available through our website at www.designerbrands.com.
Rawlins, Designer Brands' Chief Executive Officer, is a proud signatory of the CEO Action for Diversity & Inclusion Pledge, the largest CEO-driven business commitment to advance diversity and inclusion in the workplace.
Additionally, as of the end of 2022, 36% of the Company's Board of Directors and 46% of executives in vice president and above positions self-identified as female. Mr. Rawlins, Designer Brands' current CEO, is a proud signatory of the CEO Action for Diversity & Inclusion Pledge, the largest CEO-driven business commitment to advance diversity and inclusion in the workplace.
We have entered into a licensing agreement with ABG-Camuto whereby we pay royalties to ABG-Camuto, with the royalty expense included in our cost of sales on the consolidated statements of operations, based on the sales of licensed products, subject to guaranteed minimums.
We have entered into a licensing agreement with ABG-Camuto, whereby we pay royalties to ABG-Camuto based on the sales of licensed products, subject to guaranteed minimums. ABG-Camuto also earns royalties on sales from third parties that license the brand names to produce non-footwear product categories.
We are on a journey to promote greater levels of DE&I in everything we do and recognize that there is still a long way to go. We will continue to challenge our own biases, initiate difficult conversations in meaningful ways, engage diverse perspectives to drive innovation, and intentionally evolve our operating strategies to advance this important work.
We are on a journey to promote greater levels of DE&I in everything we do and recognize that there is still a long way to go.
Inventory management is important to our business as we manage our inventory levels based on anticipated sales and the delivery requirements of our customers. Our inventory strategy is focused on continuing to meet consumer demand while improving our efficiency over the long term by enhancing systems and processes.
Our inventory management strategy is focused on continuing to meet consumer demand, while improving our efficiency over the long term by enhancing systems and processes. BRAND PORTFOLIO SEGMENT Our Brand Portfolio segment designs, develops, and sources in-season fashion footwear and accessories for the sale of wholesale merchandise to our retail segments and our other retailer customers.
The following table presents the percentages of the Brand Portfolio segment's merchandise units sourced by country: 2021 2020 China 75 % 73 % Vietnam 9 % 13 % Brazil 11 % 7 % All other foreign locations 5 % 7 % COMPETITION The footwear market is highly competitive with few barriers to entry.
The following table presents the percentages of the Brand Portfolio segment's merchandise units sourced by country: 2022 2021 China 76 % 75 % Vietnam 9 % 9 % Brazil 9 % 11 % All other foreign locations 6 % 5 % ACQUISITIONS On December 13, 2022, we acquired a 79.4% ownership interest in Topo Athletic LLC ("Topo") for $19.1 million.
Recognizing and respecting our customer base, we strive to maintain a diverse and inclusive workforce. In the U.S., nearly 80% of our associates are female and over 50% of the associate population is comprised of people of color.
Our DE&I principles are also reflected in our associate training programs, which address our policies against harassment, bullying, and bias in the workplace. We strive to maintain a diverse and inclusive workforce. As of January 28, 2023, nearly 79% of our U.S. based associates self-identified as female and over 55% of our U.S. associate population self-identified as people of color.
ASSOCIATE ENGAGEMENT We provide all associates with the opportunity to share their opinions and feedback on their employment experience through engagement surveys performed on a regular basis across all business segments. Results of the surveys are measured and analyzed with a goal of enhancing the associate experience, strengthening engagement and retention, and driving change.
We will continue to challenge our own biases, engage in difficult conversations in meaningful ways, foster diverse perspectives to drive innovation, and intentionally evolve our operating strategies to advance this important work. 7 Table of contents ASSOCIATE ENGAGEMENT We provide all associates with the opportunity to share their opinions and feedback on their employment experience through engagement surveys performed on a regular basis across all business segments.
Our medical plan covers up to two cycles of IVF or other fertility services in addition to necessary fertility medication and testing; and ◦ maternity and parenting tools to assist before, throughout, and beyond pregnancy.
Our medical plan covers up to two cycles of IVF or other fertility services in addition to necessary fertility medication and testing. ◦ Maternity program that provides resources and support to expecting mothers through expert nurse care coordinators throughout their pregnancies. • Multiple types of paid leave are provided at no cost to associates.
The program helps associates discover tools and resources available throughout a maternity/paternity leave of absence, as well as the subsequent return to work. • Multiple types of paid leave are provided. Full-time associates receive short-term disability income replacement insurance at no cost, paid parental leave, and jury duty pay.
Full-time associates receive short-term disability income replacement pay, as well as paid parental leave, and jury duty pay.
TALENT DEVELOPMENT To help our associates succeed in their roles, we emphasize continuous learning and development opportunities. Training provided through our online learning platform includes a wide variety of topics and is designed to address the needs of our entire workforce, from entry-level associates to our most senior executives.
Training provided through our online learning platform includes nearly 250 resources such as videos, self-paced on-demand learning, and virtual instructor-led sessions. A wide variety of resources are designed to address the needs of our entire workforce, from entry-level associates to our most senior executives. During 2022, 11,500 associates completed approximately 100,000 learning experiences through our online learning platfor m.
Through our ship-from-store capability, both in the U.S. and in Canada, inventory is shipped directly from our stores to customers. Through our U.S. drop ship program, inventory is shipped from the vendor's warehouse directly to the customer.
Through our U.S. drop ship program, inventory is shipped from our vendors' warehouses directly to our customers. Inventory management is important to our business, we manage our inventory levels based on anticipated sales and the delivery requirements of our customers.
Since partnering with Soles4Souls in 2018, we are proud to have donated nearly six million pairs of shoes, including more than 1.8 million pairs donated in 2021. 2. Two Ten Footwear Foundation - Two Ten provides scholarships and financial aid to people working in the footwear industry, as well as free counseling and community resources.
I n 2022, we focused our register donation efforts to support Soles4Souls, generating over $600,000 in customer-funded donations. 2. Two Ten Footwear Foundation - Two Ten provides scholarships and financial aid to people working in the footwear industry, as well as free counseling and community resources. Many of our own associates have been beneficiaries of Two Ten's programs.
Refer to Note 2 , Revenue , of the Consolidated Financial Statements of this Form 10-K for the U.S. Retail and Canada Retail segments' total net sales attributable to each merchandise category. LOYALTY PROGRAMS We invite customers to join our VIP rewards programs, where members earn points towards discounts on future purchases.
Refer to Note 3 , Revenue , of the Consolidated Financial Statements of this Form 10-K, for the disaggregation of total net sales. 1 Table of contents The following table presents certain data about the sourcing of our merchandise: 2022 2021 Number of unrelated third-party merchandise vendors at end of fiscal year 420 440 Percentage of purchases from: Brand Portfolio segment, including wholesale purchases and First Cost sourced Owned Brands 8 % 9 % Top three national brand vendors 22 % 20 % LOYALTY PROGRAMS We invite customers to join our VIP rewards programs, which enable members to earn points toward discounts on future purchases.
Online orders from the U.S. can also be fulfilled from our fulfillment center or directly from our suppliers (referred to as "drop ship"). Our order routing optimization system determines the best location to fulfill digitally demanded products, which allows us to optimize our operating profit.
Online orders from the U.S. can also be fulfilled from our distribution center located in New Jersey, which is a shared facility with the Brand Portfolio segment ("East Coast Logistics Center"), or directly from our vendors (referred to as "drop ship").
The Brand Portfolio segment has four customers that make up approximately 57% of its total net sales, excluding intersegment net sales, and the loss of any or all of these customers could have a material adverse effect on the Brand Portfolio segment. 2 LICENSING RIGHTS Through Camuto Group, we own the footwear, and in some cases the handbag, licensing rights of Jessica Simpson, Lucky Brand, and, through a joint venture, JLO Jennifer Lopez.
The loss of any or all of these customers could have a material adverse effect on the Brand Portfolio segment. 2 Table of contents LICENSING RIGHTS Our equity investments in ABG-Camuto, LLC ("ABG-Camuto") and Le Tigre 360 Global LLC ("Le Tigre") are an integral part of the Brand Portfolio segment.
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ASSORTMENT We sell a large assortment of brand name, designer and exclusive branded merchandise. During 2020 and continuing into 2021, we experienced a shift in customer preferences from dress toward casual and athletic offerings (referred to as "athleisure").
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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.
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We plan to continue to expand our athleisure and kids’ products, and offer customers stylish exclusive brands, including the Vince Camuto, Lucky, JLO Jennifer Lopez, and Jessica Simpson brands.
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Likewise, returns may be shipped to us or brought back to any of our locations.
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We believe that our increased penetration in the athletic market, coupled with our historical success in dress and seasonal footwear with a fully integrated supply chain supported by our Brand Portfolio segment, position us to be a premier footwear retailer for the entire family's needs over the long term. 1 The following table presents certain data about the sourcing of our merchandise: 2021 2020 Number of unrelated third-party merchandise vendors 440 480 Percentage of purchases from: Brand Portfolio segment, including First Cost sourced exclusive branded products and wholesale purchases of licensed products 9 % 8 % Top three unrelated third-party merchandise vendors 20 % 22 % We separate our merchandise into four primary categories: women's footwear, men's footwear, kids' footwear, and accessories and other.
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ASSORTMENT We sell a large assortment of national brands and brands we have rights to sell through ownership or license arrangements, which we refer to as "Owned Brands." During 2022, we made progress in our long-term goal of doubling the net sales from our Owned Brands by 2026 (using 2021 net sales as a baseline), while maintaining our net sales from national brands.
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BRAND PORTFOLIO SEGMENT Our Brand Portfolio segment designs, develops, and sources in-season fashion footwear and accessories through Camuto LLC, a wholly-owned subsidiary doing business as "Camuto Group," for the sale of wholesale merchandise to our retail segments and our other retailer customers.
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We expect this long-term goal will result in approximately one-third of our total net sales coming from Owned Brands by 2026. We believe that increasing net sales from our Owned Brands products will not only drive growth and expand our gross margin, but will also elevate our presence as a brand builder.
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ABG-Camuto also earns royalties on sales from third parties that license the brand names to produce non-footwear product categories. Given our 40% ownership interest in ABG-Camuto, we recognize earnings under the equity method, included within the Brand Portfolio segment as it is considered an integral part of the Brand Portfolio segment business.
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In addition to disaggregating our net sales between Owned Brands and national brands, we disaggregate our net sales into four primary categories: women's footwear, men's footwear, kids' footwear, and accessories and other.
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In addition, our wholesale retailer customers sell shoes purchased from competing footwear suppliers with owned and licensed brands that are well known. 3 HUMAN CAPITAL MANAGEMENT We believe the strength of our workforce is critical to our success. Our associates strive every day to create a welcoming and inclusive environment for our customers.
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In July 2022, we acquired a 33.3% ownership interest in Le Tigre, which manages the Le Tigre brand, for $8.2 million. 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.
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Health & Wellness Related- • We continue to offer a COVID-19 paid leave policy that provides up to one week of pay for associates who contract the virus, are involuntarily quarantined, are experiencing side effects from obtaining a vaccine, or are without work due to changes in store hours because of direct or indirect impacts of the virus. • In 2021, we implemented a new benefit granting paid time off to over 8,500 U.S. part-time associates, which they began accruing for use at the beginning of 2022. • Up to seven days of free backup childcare per year is provided to all full-time associates who need emergency childcare services for any reason. • All associates are provided free access to a national resource network to locate babysitters and nannies, who have been cleared by a background check, as well as discounts on tutoring, day care centers, and pet sitters. • Free counseling is available to all associates, their dependents, and their family members 24/7/365, including access to licensed counselors and work/life balance and bereavement specialists. 4 • Comprehensive health insurance coverage is available to all full-time associates through multiple medical plans, which also include prescription and vision insurance.
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The license agreement provides for the exclusive right to design, source, and sell Le Tigre branded footwear . W e recognize equity investments and earnings under the equity method within the Brand Portfolio segment. In addition, we own the licensing rights for footwear of the Jessica Simpson brand and for footwear and handbags of the Lucky Brand.
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We invest resources in professional development and growth as a means of improving associate performance, engagement, and retent ion. During 2021, over 11,800 associates completed one of our over 280 courses via our online learning platform.
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Topo is a designer of specialty athletic footwear that sells its Topo branded products at wholesale to retailers and international distributors and through its direct-to-consumer e-commerce site at www.topoathletic.com. The Topo acquisition provides us with expanded capabilities within the athletic footwear market.
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Many of our own associates have been beneficiaries of Two Ten's programs. We support Two Ten with corporate financial donations and subject matter expertise to continue to enrich their community program offerings. 3.
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On February 4, 2023, we acquired the Keds business, including the Keds brand, inventory, and inventory-related accounts payable, from Wolverine World Wide, Inc. for $123.3 million.
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E Heydlauff United Way Legacy Award for Outstanding Philanthropy Leadership from Columbus Business First, for the new and innovative partnerships we forged through our point-of-sale campaigns and the creation of the Equity Advancement Fund at United Way of Central Ohio.
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The Keds business designs, sources, and sells branded footwear and earns revenue from the wholesale of products to retailers in the U.S. and Canada, the wholesale of products to international distributors, and the sale of branded products through direct-to-consumer e-commerce sites in the U.S. and Canada.
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Through our register donations, during 2021, we also raised nearly $200,000 for Nationwide Children’s Hospital’s "On Your Sleeves" program to advance their goal of providing free mental health education resources to children in all communities across the U.S. DIVERSITY, EQUITY, AND INCLUSION ("DE&I") We support diversity, equity, and inclusion.
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We will account for the acquisition and include the results of the Keds business in our Brand Portfolio segment beginning with our first quarter of 2023. 3 Table of contents COMPETITION The footwear market is highly competitive with few barriers to entry.
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We strive to inspire self-expression, authenticity, and empowerment to drive the best possible experiences for our associates, customers, and communities.
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CHIEF EXECUTIVE OFFICER TRANSITION In January 2023, we announced our planned succession process relating to the Company's CEO role, whereby our current CEO, Roger Rawlins, will step down from his role as CEO and as a member of the Board of Directors effective April 1, 2023, or such earlier date as determined by the Board of Directors, at which time Doug Howe, who currently serves as Executive Vice President of the Company and President of DSW, will assume the CEO role and join the Board of Directors as a Class II director.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWhile we maintain business interruption and property insurance, in the event of a data center shutdown, our insurance may not be sufficient to cover the impact to the business. 11 Our e-commerce operations are important to our business and are subject to various risks of operating online and mobile selling capabilities such as the failure of our information technology infrastructure, including any third-party hardware or software, resulting in downtime or other technical issues; reliance on third-party logistics providers to deliver our products to customers; inability to respond to technological changes; violations of state or federal laws; credit card fraud; or other information security breaches.
Biggest changeOur e-commerce operations are important to our business and are subject to various risks of operating online and mobile selling capabilities, such as the failure of our IT infrastructure, including any third-party hardware or software, resulting in downtime or other technical issues; inability to respond to technological changes; credit card fraud; or other information security breaches.
In the event we experience an information security breach, our insurance may not be sufficient to cover the impact to the business.
In the event we experience an information security breach, our insurance may not be sufficient to cover the impact to our business.
As existing mobile devices and platforms evolve and new mobile devices and platforms are released, it is difficult to predict the problems we may encounter in adjusting and developing applications for changes and alternative devices and platforms, and we may need to devote significant resources to the creation, support, and maintenance of such applications.
As existing mobile devices and platforms evolve and new mobile devices and platforms are released, it is difficult to predict the problems we may encounter in adjusting and developing applications for changes to alternative devices and platforms, and we may need to devote significant resources to the creation, support, and maintenance of such applications.
We are subject to other consumer protection laws, including California's Consumer Legal Remedies Act and unfair competition and false advertising laws, the Fair and Accurate Credit Transactions Act and the Telephone Consumer Protection Act, Canada's Anti-Spam Law, the CCPA, CPRA and other recently enacted consumer data protection laws.
We are subject to other consumer protection laws, including California's Consumer Legal Remedies Act and unfair competition and false advertising laws, the Fair and Accurate Credit Transactions Act and the Telephone Consumer Protection Act, Canada's Anti-Spam Law, the CCPA, the CPRA and other recently enacted consumer data protection laws.
In addition, provisions of our amended articles of incorporation, amended and restated code of regulations, and Ohio law, together or separately, could discourage potential acquisition proposals, delay or prevent a change in control, or limit the price that certain investors might be willing to pay in the future for our common shares.
In addition, provisions of our amended and restated articles of incorporation, amended and restated code of regulations, and Ohio law, together or separately, could discourage potential acquisition proposals, delay, or prevent a change in control, or limit the price that certain investors might be willing to pay in the future for our common shares.
In addition, we rely on manufacturers that operate outside of North America, including China, Vietnam, and Brazil, who may disclose our intellectual property or other proprietary information to competitors or third parties, which could result in the distribution and sale of counterfeit versions of our products. Our international operations expose us to political, economic, operational, compliance, and other risks.
In addition, we rely on manufacturers that operate outside of North America, including China, Vietnam, and Brazil, that may disclose our intellectual property or other proprietary information to competitors or third parties, which could result in the distribution and sale of counterfeit versions of our products. Our international operations expose us to political, economic, operational, compliance, and other risks.
However, advances in computer capabilities, increasingly sophisticated tools and methods used by hackers and cyber terrorists, new discoveries in the field of cryptography or other developments may result in our failure or inability, or the failure or inability of our vendors, to adequately protect personal or other sensitive information and there can be no assurance that we or our vendors will not suffer a cyberattack, that hackers or other unauthorized parties will not gain access to or exfiltrate personal information or other sensitive data, or that any such data compromise or unauthorized access will be discovered in a timely fashion.
Advances in computer capabilities, increasingly sophisticated tools and methods used by hackers and cyber terrorists, new discoveries in the field of cryptography or other developments may result in our or our vendors' failure or inability to adequately protect personal or other sensitive information, and there can be no assurance that we or our vendors will not suffer a cyberattack, that hackers or other unauthorized parties will not gain access to or exfiltrate personal information or other sensitive data, or that any such data compromise or unauthorized access will be discovered in a timely fashion.
In addition, any significant disruption of our data center could have a material adverse effect on those operations dependent on those systems, specifically, our store and e-commerce operations, our distribution centers and fulfillment center and our merchandising team.
In addition, any significant disruption of our data center could have a material adverse effect on those operations dependent on those systems, specifically, our store and e-commerce operations, our distribution centers, and our merchandising team.
If we or our third-party service providers experience security breaches that result in a decline in marketplace performance, availability problems, or the loss, corruption of, unauthorized access to, or disclosure of personal data or confidential information, people may become unwilling to provide us the information necessary to make purchases on our sites, and our reputation and market position could be harmed.
If we or our third-party service providers experience security breaches that result in a decline in marketplace performance, availability problems, or the loss, corruption of, unauthorized access to, or disclosure of personal data or confidential information, people may become unwilling to provide us the information necessary to make purchases on our e-commerce sites, and our reputation and market position could be harmed.
We may not anticipate all the changing demands on our operations, and events beyond our control may occur, including disruptions in operations due to public health threats, such as the COVID-19 pandemic, delays in the integration of new stores, catastrophic events, shortages in labor, or shipping problems, any of which may result in delays in the delivery of merchandise to our stores and customers.
We may not anticipate all the changing demands on our operations, and events beyond our control may occur, including disruptions in operations due to public health threats, such as the COVID-19 pandemic, catastrophic events, shortages in labor, or shipping problems, any of which may result in delays in the delivery of merchandise to our stores and customers.
Because the Class B common shares are not listed on a securities exchange or an automated quotation system, it may be difficult to obtain pricing information with respect to the shares. Accordingly, there may be a limited number of buyers if a holder decided to sell its Class B common shares.
Because the Class B common shares are not listed on a securities exchange or an automated quotation system, it may be difficult to obtain pricing information with respect to the shares. Accordingly, there may be a limited number of buyers if a holder decides to sell its Class B common shares.
If we are unable to offer suitable alternatives to satisfy product demand, sales could decline which could have a material adverse effect on our operating results. Losses or disruptions associated with our distribution systems, including our distribution centers and fulfillment center and stores, could have a material adverse effect on our business and operations.
If we are unable to offer suitable alternatives to satisfy product demand, sales could decline, which could have a material adverse effect on our operating results. Losses or disruptions associated with our distribution systems, including our distribution centers and stores, could have a material adverse effect on our business and operations.
A variety of factors will affect our ability to maintain the proper mix of products, including: local economic conditions impacting customers' discretionary spending; unanticipated fashion trends; our ability to provide timely access to popular brands at attractive prices; our success in distributing merchandise to our stores and our wholesale retailer customers in an efficient manner; and changes in weather patterns, which, in turn, may affect consumer preferences.
A variety of factors will affect our ability to maintain the proper mix of products, including economic conditions impacting discretionary consumer spending; unanticipated fashion trends; our ability to provide timely access to popular brands at attractive prices; our success in distributing merchandise to our stores, online customers, and our wholesale retailer customers in an efficient manner; and changes in weather patterns, which, in turn, may affect consumer preferences.
Additionally, we maintain other confidential, proprietary, or otherwise sensitive information relating to our business and from third parties.
Additionally, we maintain other confidential, proprietary, or otherwise sensitive information relating to our business and our third parties.
We could also face potential claims, investigations, regulatory proceedings, liability and litigation, and bear other substantial costs in connection with remediating and otherwise responding to any data security breach, all of which may not be adequately covered by insurance, and which may result in an increase in our costs for insurance or insurance not being available to us on economically feasible terms, or at all.
We could also face potential claims, investigations, regulatory proceedings, liability and litigation, and bear other substantial costs in connection with remediating and otherwise responding to any data security breach, all of which may not be adequately covered by insurance, and which may 13 Table of contents result in an increase in our costs for insurance or insurance not being available to us on economically feasible terms, or at all.
The smaller screen size, functionality, and memory associated with smartphones, laptops, and tablets may make the use of our sites and purchasing our products more difficult. The versions of our sites developed for these devices and our mobile app may not be compelling to consumers.
The smaller screen size, functionality, and memory associated with smartphones, laptops, and tablets may make the use of our websites and purchasing our products online more difficult. The versions of our sites developed for these devices and our mobile app may not be compelling to consumers.
We may be subject to additional privacy regulations in the future, including the Virginia Consumer Data Protection Act and the Colorado Privacy Act, both of which regulate the processing of "personal data" regarding their respective residents and grants residents certain rights with respect to their personal data.
We may be subject to additional privacy regulations in the future, including the Virginia Consumer Data Protection Act and the Colorado Privacy Act, both of which regulate the processing of "personal data" regarding their respective residents and grant residents certain rights with respect to their personal data.
Moreover, natural disasters and extreme weather conditions may impact the productivity of our facilities, the operation of our supply chain, or consumer buying patterns. Any of these risks could have a material adverse effect on our business.
Moreover, natural disasters and extreme weather conditions may impact the productivity of our facilities, the operation of our supply chain, or consumer buying patterns and the predictability thereof. Any of these risks could have a material adverse effect on our business.
In addition, the Schottenstein Affiliates have the right to engage in similar activities as us, do business with our suppliers and customers, and, except as limited by agreement, employ or otherwise engage any of our officers or associates.
In addition, the Schottenstein Affiliates have the right to engage in similar activities as us, do business with our suppliers and customers, and, except as limited by agreement, employ or otherwise engage any of our executives or associates.
Businesses, including our suppliers, can easily launch online sites and mobile platforms at nominal costs by using commercially available software or partnering with any of a number of successful digital marketplace providers. Some of our suppliers use such platforms to compete with us by allowing consumers to purchase products directly through the supplier.
Businesses, including our suppliers, can easily launch e-commerce sites and mobile platforms at nominal costs by using commercially available software or partnering with any of a number of successful digital marketplace providers. Some of our suppliers use such platforms to compete with us by allowing consumers to purchase products directly through the supplier.
We typically do not have long-term supply contracts with our manufacturers, and the loss of any of our major manufacturers could disrupt our operations and adversely affect our business. In addition, we cannot predict the impact of global events such as inclement weather, natural disasters, public health threats, or acts of terrorism.
We typically do not have long-term supply contracts with our manufacturers, and the loss of any of our major manufacturers could disrupt our operations and adversely affect our business. In addition, we cannot predict the impact of global events, such as inclement weather, natural disasters, public health threats, or acts of terrorism, on our third-party manufacturers.
Furthermore, as a "controlled company" within the meaning of the New York Stock Exchange (the "NYSE") rules, the Company qualifies for and, in the future, may opt to rely on, exemptions from certain corporate governance requirements, including having a majority of independent directors, as well as having nominating and corporate governance and compensation committees composed entirely of independent directors.
Furthermore, as a "controlled company" within the meaning of the New York Stock Exchange (the "NYSE") rules, the Company qualifies for, and in the future may opt to rely on, exemptions from certain corporate governance requirements, including having a majority of independent directors, as well as having nominating and corporate governance and compensation committees composed entirely of independent directors. 18 Table of contents
The California Privacy Rights Act ("CPRA"), which was passed in November 2020 and will take effect in January 2023 (with a look-back for certain requirements to January 2022), amends and expands the CCPA and places additional restrictions on the "sharing" of personal information for purposes of cross-context behavioral advertising.
The California Privacy Rights Act ("CPRA"), which was passed in November 2020 and took effect in January 2023 (with a look-back for certain requirements to January 2022), amends and expands the CCPA and places additional restrictions on the "sharing" of personal information for purposes of cross-context behavioral advertising.
Our business relies on information technology networks and systems to market and sell our products, process financial and personal information, manage a variety of business processes, and comply with regulatory, legal and tax requirements.
Our business relies on IT networks and systems to market and sell our products, process financial and personal information, manage a variety of business processes, and comply with regulatory, legal and tax requirements.
Existing 12 customers may also decrease their purchases or close their accounts altogether.
Existing customers may also decrease their purchases or close their accounts altogether.
A variety of federal, state, local, and foreign laws and regulations, orders, rules, codes, regulatory guidance and certain industry standards regarding privacy, data protection, consumer protection, information security and the processing of personal information and other data apply to our business.
Our business is subject to a variety of federal, state, local, and foreign laws and regulations, orders, rules, codes, regulatory guidance and certain industry standards regarding privacy, data protection, consumer protection, information security and the processing of personal information and other data.
Such events may increase our expenses, expose us to liabilities and impair our reputation, which could have a material adverse effect on our business.
Such events may increase our expenses, expose us to liabilities and harm our reputation, which could have a material adverse effect on our business.
If we experience significant delays in receiving product, this could result in canceled orders by retailer customers, unanticipated inventory shortages or receipt of seasonal product after the peak selling season, and increased expense of air freight, which could have a material adverse effect on our business and operations.
If we experience significant delays in receiving product, this could result in canceled orders by retailer customers, unanticipated inventory shortages or receipt of seasonal product after the peak selling season, which could have a material adverse effect on our business and operations.
The COVID-19 pandemic also has the potential to significantly impact our supply chain if the factories that manufacture our products, the distribution systems we use to manage our inventory, or the operations of our logistics and other service providers are disrupted, temporarily closed or experience worker shortages.
The COVID-19 pandemic also has the potential to exacerbate supply chain issues if the factories that manufacture our products, the distribution systems we use to manage our inventory, or the operations of our logistics and other service providers are disrupted, temporarily closed, or experience worker shortages.
Given the nature of our business, we, together with third parties acting on our behalf, receive, collect, process, use, and retain sensitive and confidential customer and associate data, in addition to proprietary business information.
Given the nature of our business, we, together with third parties acting on our behalf, receive, collect, process, use, and retain sensitive and confidential customer and associate data and proprietary business information.
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.
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, our obligations under the ABL Revolver may be accelerated, outstanding letters of credit may be required to be cash collateralized and remedies may be exercised against the collateral.
The implementation of upgrades and changes requires significant investments. Our results of operations may be affected by the timing, effectiveness, and costs associated with the successful implementation of any upgrades or changes to our systems and infrastructure.
Our results of operations may be affected by the timing, effectiveness, and costs associated with the successful implementation of any upgrades or changes to our systems and infrastructure.
The information technology networks and systems owned, operated, controlled or used by us or our vendors may be vulnerable to damage, disruptions or shutdowns, software or hardware vulnerabilities, data breaches, security incidents, supply-side attacks, failures during the process of upgrading or replacing software, databases or components, power outages, natural disasters, hardware failures, attacks by computer hackers, telecommunication failures, user errors, user malfeasance, computer viruses, unauthorized access, phishing or social engineering attacks, ransomware attacks, denial-of-service attacks and other real or perceived cyberattacks or catastrophic events, all of which may not be prevented by our efforts to secure our computer systems.
The IT networks and systems owned, operated, controlled or used by us or our vendors may be susceptible to damage, disruptions or shutdowns, software or hardware vulnerabilities, data breaches, security incidents, supply-side attacks, failures during the process of upgrading or replacing software, databases or components, power outages, natural disasters, hardware failures, attacks by computer hackers, telecommunication failures, user errors, user malfeasance, computer viruses, unauthorized access, phishing or social engineering attacks, ransomware attacks, distributed denial-of-service attacks, brute force, robocalls, and other real or perceived cyberattacks or catastrophic events, all of which may not be prevented by our efforts to secure our computer systems.
If we fail to maintain strong relationships with these vendors or if they fail to ensure the quality of merchandise that they supply to us, our ability to provide our customers with merchandise they want at favorable prices may be limited, which could have a negative impact on our business.
If we fail to maintain strong relationships with these vendors or if they fail to ensure the quality of merchandise that they supply to us, our ability to provide our customers with merchandise they want at favorable prices may be limited, which could have a material adverse effect on our business.
During 2021, three key third-party vendors together supplied approximately 20% of our retail merchandise, with no individual vendor providing more than 10% of our retail merchandise. The loss of, or a reduction in, the amount and quality of merchandise supplied by any of our high-volume vendors could have an adverse effect on our business.
During 2022, three key third-party vendors together supplied approximately 22% of our retail merchandise, with no individual vendor providing more than 10% of our retail merchandise. Th e loss of, or a reduction in, the amount and quality of merchandise supplied by any of our high-volume vendors could have an adverse effect on our business.
All of the products manufactured through the Brand Portfolio segment come from third-party facilities outside of the U.S., with 75% sourced from China during 2021, whereas our U.S. Retail segment and Canada Retail segment merchandise is purchased from both domestic and foreign vendors.
All of the products manufactured through the Brand Portfolio segment come from third-party facilities outside of the U.S., with 76% sourced from China during 2022. Our U.S. Retail segment and Canada Retail segment merchandise is purchased from both domestic and foreign vendors.
If we are unable to anticipate trends and fulfill the merchandise needs of our customers, we may experience decreases in our net sales and/or may be forced to increase markdowns in relation to slow-moving merchandise, either of which could have a material adverse effect on our business.
If we are unable to anticipate trends and fulfill the merchandise needs of our customers, we may experience decreases in our net sales and/or may be forced to increase markdowns in relation to slow-moving merchandise, either of which could have a material adverse effect on our business. We rely on our strong relationships with vendors to purchase products.
ITEM 1A. RISK FACTORS Investing in our Class A common shares involves a high degree of risk. In addition to the other information in this Form 10-K and in our other public filings, investors should carefully consider the following risk factors. The risks described below are not the only ones facing us.
ITEM 1A. RISK FACTORS Investing in our Class A common shares involves a high degree of risk. In addition to the other information in this Form 10-K and in our other public filings, investors should carefully consider the following risk factors. The risks described below are not the only risks we face or may face.
The Schottenstein Affiliates directly control or substantially influence the outcome of matters submitted to Designer Brands Inc.'s shareholders for approval, including the election of directors, approval of mergers or other business combinations, and acquisitions or dispositions of assets.
The Schottenstein Affiliates directly control or substantially influence the outcome of matters submitted to our shareholders for approval, including the election of directors, approval of mergers or other business combinations, and acquisitions or dispositions of assets.
The success of our Brand Portfolio segment depends on our ability to obtain products from our third-party manufacturers on a timely basis, on acceptable terms, and to our specifications.
The success of our business depends on our ability to obtain products from our third-party manufacturers on a timely basis, on acceptable terms, and to our specifications.
The success of our Brand Portfolio segment is dependent on the strength of our relationships with our retailer customers, and reductions in or loss of sales to such customers as a result of the ongoing COVID-19 pandemic could have a material adverse effect on our financial performance.
The success of our Brand Portfolio segment is dependent on the strength of our relationships with our retailer customers, and reductions in or loss of sales to such customers could have a material adverse effect on our financial performance.
Further, any negative brand image, widespread product defects, financial distress, or negative publicity related to our key vendors, or other vendors, could have a material adverse effect on our reputation and on our business. Decisions by vendors not to sell to us or to limit the availability of their products to us could have a negative impact on our business.
In addition, any negative brand image, widespread product defects, financial distress, or negative publicity related to our vendors could have a material adverse effect on our reputation and on our business. Decisions by vendors not to sell to us or to limit the availability of the products they sell to us could have a negative impact on our business.
This may affect the price a holder would receive upon such sale. Alternatively, a holder of such shares could convert them into Class A common shares, on a share for share basis, prior to selling.
This may affect the price a holder would receive upon such sale. Alternatively, a holder of such shares could convert them into Class A common shares, on a share-for-share basis, prior to selling. However, such conversion could affect the timing of any such sale, which may in turn affect the price a holder may receive upon such sale.
Furthermore, many of our license agreements require minimum royalty payments, and if we are unable to generate sufficient sales and profitability to cover these minimum royalty requirements, we may be required to make additional payments to the licensors, which could have a material adverse effect on our business and results of operations. 13 Our ABL Revolver has restrictions that could limit our ability to fund operations, which could adversely affect our business.
Furthermore, many of our license agreements require minimum royalty payments, and if we are unable to generate sufficient sales and profitability to cover these minimum royalty requirements, we may be required to make additional payments to the licensors, which could have a material adverse effect on our business and results of operations.
Competition from e-commerce players has significantly increased due to their ability to provide improved user experience, greater ease of buying goods, low or no shipping fees, faster shipping times, and more favorable return policies.
E-commerce networks have rapidly evolved and consumer receptiveness to shopping online has substantially increased. Competition from e-commerce players has significantly increased due to their ability to provide improved user experience, greater ease of buying goods, low or no shipping fees, faster shipping times, and more favorable return policies.
Our success depends, to a significant extent, on the willingness and ability of our vendors to supply us with merchandise that meets our changing customer expectations, especially as we concentrate our receipts to fewer branded vendors.
Our success depends, to a significant extent, on the willingness and ability of our vendors to supply us with merchandise that meets our changing customer expectations.
Our amended articles of incorporation authorize our Board of Directors to issue up to 100,000,000 preferred shares and to determine the powers, preferences, privileges, rights, including voting rights, qualifications, limitations, and restrictions on those shares, without any further vote or action by the shareholders.
This could adversely affect the value of our Class A common shares. Our amended and restated articles of incorporation authorize our Board of Directors to issue up to 100 million preferred shares and to determine the powers, preferences, privileges, rights, including voting rights, qualifications, limitations, and restrictions on those shares, without any further vote or action by the shareholders.
We could also experience downtime or other technical issues as we make changes to our systems and processes, which could have a material adverse effect on our business. 9 We rely on our strong relationships with vendors to purchase products.
We could also experience downtime or other technical issues as we make changes to our systems and processes, which could have a material adverse effect on our business.
Greenhouse gases may have an adverse effect on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters. Such events could have a negative effect on our business.
Legislative or regulatory initiatives related to climate change could have a material adverse effect on our business. Greenhouse gases may have an adverse effect on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters. Such events could have a negative effect on our business.
Moreover, we are unable to predict the severity of macroeconomic uncertainty, whether or when such circumstances may improve or worsen, or the full impact such circumstances could have on our business.
The continuation of these trends could have a material adverse effect on our business or operating results. Moreover, we are unable to predict the severity of macroeconomic uncertainty, whether or when such circumstances may improve or worsen, or the full impact such circumstances could have on our business.
In addition, the ABL Revolver 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.
The 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.
Such events may increase our costs and disrupt our operations, which could have a material adverse effect on our business, financial condition, and results of operations. We require our business partners to operate in compliance with applicable laws and regulations and our internal requirements. However, we do not control such third parties or their labor and business practices.
Such events may increase our costs and disrupt our operations, which could have a material adverse effect on our business, financial condition, and results of operations. 15 Table of contents We require our business partners to operate in compliance with applicable laws and regulations and our internal requirements.
Our major retailer customers have experienced and may continue to experience a significant downturn in their businesses as a result of the ongoing COVID-19 pandemic and, in turn, these customers have reduced, and may continue to reduce, their purchases from us, which has had and may continue to have a material adverse effect on the Brand Portfolio segment.
Our major retailer customers may experience a significant downturn in their businesses as a result of macroeconomic conditions, and, in turn, these customers may reduce their purchases from us, which may have a material adverse effect on the Brand Portfolio segment.
If such data are lost or disclosed in an unauthorized manner, or if we or our third-party vendors are subject to cyberattacks, data breaches, other security incidents, or disruption of information technology systems or software, such events could expose us to liability, could damage our reputation, and have a material adverse effect on our business.
If such data is lost or disclosed in an unauthorized manner, or if we or our third-party vendors are subject to cyberattacks, data breaches, other security incidents, or disruption of IT systems or software, we could be exposed to liability, experience reputational harm, and have a material adverse effect on our business.
All of the foregoing could expose us to market, operational and execution costs or risks. Any CSR or sustainability metrics that we currently or may in the future disclose, whether based on the standards we set for ourselves or those set by others, may influence our reputation and the value of our brands.
Any CSR or sustainability metrics that we currently or may in the future disclose, whether based on the standards we set for ourselves or those set by others, and our failure to achieve any CSR or sustainability metrics that we currently or may in the future disclose, may influence our reputation and the value of our brands.
If we are unable to attract customers to our websites through these devices or are slow to develop versions of our websites that are more compatible with alternative devices or a mobile application, we may fail to capture a significant share of customers, which could have a material adverse effect on our business. 14 Further, we continually upgrade existing technologies and business applications, and we may be required to implement new technologies or business applications in the future.
If we are unable to attract customers to our websites through these devices or are slow to develop versions of our websites that are more compatible with alternative devices or a mobile application, we may fail to capture a significant share of customers, which could have a material adverse effect on our business.
Additionally, to the extent multiple state-level laws are introduced with inconsistent or conflicting standards and there is no federal law to preempt such laws, compliance with such laws could be difficult and costly to achieve, or impossible to achieve, and we could be subject to fines and penalties in the event of non-compliance. 16 Legislative or regulatory initiatives related to climate change could have a material adverse effect on our business.
Additionally, to the extent multiple state-level laws are introduced with inconsistent or conflicting standards and there is no federal law to preempt such laws, compliance with such laws could be difficult and costly to achieve, or impossible to achieve, and we could be subject to fines and penalties in the event of non-compliance.
We are also subject to risk of damage or loss during delivery by our shipping vendors. If our merchandise is not delivered in a timely fashion or is damaged or lost during the delivery process, our customers could become dissatisfied and cease shopping on our sites, which could adversely affect our business and operating results.
In addition, if our merchandise is not delivered to customers in a timely fashion or is damaged or lost during the delivery process, our customers could become dissatisfied and cease shopping on our websites, which could adversely affect our business and operating results.
Additionally, foreign currency exchange rates and fluctuations may negatively impact our financial results. Any of these events could have a material adverse effect on our business, financial condition, or results of operations. 15 Vaccine mandates and other governmental regulations relating to the ongoing COVID-19 pandemic could have a material adverse impact on our business, operations, and results of operations.
Additionally, foreign currency exchange rates and fluctuations may negatively impact our financial results. Any of these events could have a material adverse effect on our business, financial condition, or results of operations.
We rely on the flow of goods through ports worldwide on a consistent basis from factories and suppliers. Disruptions at ports could create significant risks for our business, particularly if these disruptions occur during peak importing times. For example, the COVID-19 pandemic has resulted in delays at ports due to shipping backlog, availability of vessels, capacity constraints, and other disruptions.
We rely on the flow of goods through ports worldwide on a consistent basis from factories and suppliers. Disruptions at ports could create significant risks for our business, particularly if these disruptions occur during peak importing times.
Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train associates, pay higher insurance premiums, and engage third-party specialists for additional services. An information security breach involving confidential and personal data could damage our reputation and our customers' willingness to purchase from us.
Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train associates, pay higher insurance premiums, and engage third-party specialists for additional services.
If the severity and reach of the COVID-19 pandemic continues or worsens, there may be significant and material disruptions to our supply chain and operations, which could have a material adverse effect on our financial position, results of operations, and cash flows. 8 We rely on consumer discretionary spending, which may be adversely affected by economic downturns and other macroeconomic conditions or trends, and/or negatively impacted as a result of the COVID-19 pandemic.
If the severity and reach of the COVID-19 pandemic continues or worsens, there may be significant and material disruptions to our supply chain and operations, which could have a material adverse effect on our financial position, results of operations, and cash flows.
Our reputation could be damaged if we do not, or are perceived to not, act responsibly with respect to sustainability matters, which could also have a material adverse effect on our business, results of operations, financial position, and cash flows.
Our reputation could be damaged if we do not, or are perceived to not, act responsibly with respect to sustainability matters, which could also have a material adverse effect on our business, results of operations, financial position, and cash flows. 14 Table of contents Our senior secured asset-based revolving credit facility ("ABL Revolver") has restrictions that could limit our ability to fund operations, which could adversely affect our business.
Competitors with other revenue sources may also be able to devote more resources to marketing and promotional campaigns, adopt more aggressive pricing policies, and devote more resources to websites, mobile platforms and applications, and systems development.
Competitors with other revenue sources may also be able to devote more resources to marketing and promotional campaigns, adopt more aggressive pricing policies, and devote more resources to websites, mobile platforms and applications, and systems development. We rely on foreign sources for our merchandise, and our business is therefore subject to risks associated with international trade.
The violation of labor or other laws by one of our vendors could have a material adverse effect on our business.
However, we do not control such third parties or their labor and business practices. The violation of labor or other laws by one of our vendors could have a material adverse effect on our business.
If these third-party manufacturers do not perform their obligations, cease working with us, fail to meet our product safety, social compliance or quality standards, or are unable to provide us with the materials and services we need at prices and terms that are acceptable to us, such disruptions may cause product delays and shortages, failure to deliver quality products to our customers on a timely basis, and damage to our reputation, which could have a material adverse impact on our business and results of operations.
If these third-party manufacturers do not perform their obligations, cease working with us, fail to meet our product safety, social compliance or quality standards, or are unable to provide us with the materials and services we need at prices and terms that are acceptable to us, then we could experience product delays and shortages.
Our information technology systems are an integral part of our strategies in efficiently operating our business, in managing operations, and protecting against security risks related to our electronic processing and transmitting of confidential customer and associate data.
The loss or disruption of IT services could affect our ability to implement our strategies and have a material adverse effect on our business. Our IT systems are an integral part of our strategies in efficiently operating our business, managing operations, and protecting against security risks related to our electronic processing and transmitting of confidential customer and associate data.
In addition, negative claims or publicity, including social media, regarding celebrities we have license and endorsement arrangements with could adversely affect our reputation and sales regardless of whether such claims are accurate. Consumer actions could include boycotts and negative publicity through social or digital media.
Failure to comply with ethical, social, product, labor, health and safety, accounting, or environmental standards could also jeopardize our reputation and potentially lead to various adverse consumer actions. In addition, negative claims or publicity, including social media, regarding celebrities we have license and endorsement arrangements with could adversely affect our reputation and sales regardless of whether such claims are accurate.
Insurers may also deny us coverage as to any future claim. Any of these results could harm our growth prospects, financial condition, business, and reputation. Our failure to protect our reputation could have a material adverse effect on our brands.
Insurers may also deny us coverage as to any future claim. Any of these results could harm our growth prospects, financial condition, business, and reputation. We are dependent on our customer loyalty programs and marketing to drive traffic, sales and loyalty, and any decrease in membership or purchases from members could have a material adverse effect on our business.
If we encounter problems with our ability to timely and satisfactorily fulfill customer orders, our ability to meet customer expectations, manage inventory, and complete sales, such problems could have a material adverse effect on our business.
If we encounter issues with our ability to timely and satisfactorily fulfill customer orders, meet customer expectations, manage inventory, and complete sales, our business may be adversely affected.
The requirements to keep our information technology systems operating at peak performance may be higher than anticipated and could strain our capital resources, management of any system upgrades, implementation of new systems and the related change management processes required with new systems and our ability to prevent any future information security breaches.
The requirements to keep our IT systems operating at peak performance may be higher than anticipated and could strain our capital resources, as well as impact our ability to manage any system upgrades, implement new systems, make management process changes for newly implemented systems, and prevent any information security breaches.
RISKS RELATING TO MACROECONOMIC AND INDUSTRY CONDITIONS The ongoing COVID-19 pandemic has had, and may continue to have, a material adverse impact on our business, operations, liquidity, financial condition, and results of operations. The COVID-19 pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets.
The ongoing COVID-19 pandemic has had, and may continue to have, a material adverse impact on our business, operations, liquidity, financial condition, and results of operations.
RISKS RELATING TO OUR BUSINESS AND OPERATIONS We may be unable to anticipate and respond to consumer preferences, changing customer expectations, and fashion trends, which could have a material adverse effect on our business. Demand for our products fluctuates according to changes in consumer preferences and trends, which are dictated by lifestyle, fashion and season, and may shift quickly.
Demand for our products fluctuates according to changes in consumer preferences and trends, which are dictated by lifestyle, fashion and season, and may shift quickly.
The footwear market is highly competitive with few barriers to entry. We compete against a diverse group of manufacturers and retailers, including department stores, mall-based shoe stores, national chains, independent shoe retailers, single-brand specialty retailers, online shoe retailers, brand-oriented discounters, multi-channel specialty retailers, and brand suppliers.
We compete against a diverse group of manufacturers and retailers, including department stores, mall-based shoe stores, national chains, independent shoe retailers, single-brand specialty retailers, online shoe retailers, brand-oriented discounters, multi-channel specialty retailers, and brand suppliers. In addition, our wholesale retailer customers sell shoes purchased from competing footwear suppliers with brands that are well known.
While we maintain business interruption and property insurance, in the event any of our points within our distribution system were to shut down for any reason or if we were to incur higher costs and longer lead times in connection with a disruption, our insurance may not be sufficient to cover the impact to the business. 10 The success of our Brand Portfolio segment is dependent on our third-party manufacturers and other business partners.
While we maintain business interruption and property insurance, in the event any of our points within our distribution systems were to shut down for any reason or if we were to incur higher costs and longer lead times in connection with a disruption, our insurance may not be sufficient to cover the impact to our business. 10 Table of contents Our failure to manage the transition associated with our Chief Executive Officer, retain our existing senior management team, or continue to attract qualified new personnel could have a material adverse effect on our business.
Such changes, including additional taxes and tariffs, may result in additional costs to our business and could require us to increase prices to our customers or, if unable to do so, result in a material adverse effect on our financial performance.
Such changes, including additional taxes and tariffs, may result in additional costs to our business and could require us to increase prices to our customers or, if unable to do so, result in a material adverse effect on our financial performance. 17 Table of contents RISKS RELATING TO OUR COMMON SHARES Our amended and restated articles of incorporation, amended and restated code of regulations, and Ohio state law contain provisions that may have the effect of delaying or preventing a change in control of Designer Brands.
Consequently, it is possible that, should we need to access any additional funds from our ABL Revolver, it may not be available in full. RISKS RELATING TO EXTERNAL FACTORS We may be unable to compete in our highly competitive market, which could have a material adverse effect on our business.
RISKS RELATING TO EXTERNAL FACTORS We may be unable to compete in the highly competitive footwear market, which could have a material adverse effect on our business. The footwear market is highly competitive with few barriers to entry.
Board of Directors, and members of his family (the "Schottenstein Affiliates") directly control or substantially influence the outcome of matters submitted for Designer Brands Inc. shareholder votes, and their interests may differ from other shareholders. As of January 29, 2022, the Schottenstein Affiliates have approximately 54% of the voting power of the Company's outstanding common shares.
Entities owned by or controlled by Jay L. Schottenstein, the Executive Chairman of our Board of Directors, and members of his family (the "Schottenstein Affiliates") directly control or substantially influence the outcome of matters submitted for shareholder votes, and their interests may differ from other shareholders.
Public perception about us or the products we carry, whether justified or not, could impair our reputation, involve us in litigation, damage our brand, and have a material adverse effect on our business. The value of our brands may also depend on the success of our corporate social responsibility ("CSR") and sustainability initiatives, which require company-wide coordination and alignment.
Consumer actions could include boycotts and negative publicity through social or digital media. Negative public perception about us or the products we carry, whether justified or not, could impair our reputation, involve us in litigation, damage our brands, and have a material adverse effect on our business.
We utilize security tools and controls and also rely on our third-party vendors to use sufficient security measures, including encryption and authentication technology, in an effort to protect personal and other sensitive information.
We utilize security tools and controls, which include reasonable efforts to ensure that our third-party vendors maintain sufficient security measures, including encryption and authentication technology, in an effort to reduce our cyber risk and protect personal and other sensitive information. However, none of these or our vendors' security measures can provide absolute security.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeRetail 10,308,000 Canada retail stores (3) 140 various Canadian locations Leased Canada Retail 1,103,000 Showrooms 7 various U.S. locations Leased Brand Portfolio 95,000 Foreign sourcing offices One location in China and one location in Brazil Leased Brand Portfolio 117,000 (1) Our fulfillment center is leased from a Schottenstein Affiliate, a related party, and expires in September 2022 with two renewal options of five years each.
Biggest changeRetail 10,092,000 Canada retail stores (2) 138 various Canadian locations Leased Canada Retail 1,093,000 Showrooms 6 various U.S. locations Leased Brand Portfolio 94,000 Foreign sourcing offices 1 location in China and 1 location in Brazil Leased Brand Portfolio 117,000 (1) Our DSW U.S. stores average approximately 20,100 square feet.
ITEM 2. PROPERTIES The following table summarizes the location and general use of our principal properties as of January 29, 2022 that we consider to be material to our business and we believe will meet our operational needs for the foreseeable future: Facility Location Owned/Leased Segment Approximate Square Feet Principal corporate office Columbus, Ohio Owned Corporate and U.S.
ITEM 2. PROPERTIES The following table summarizes the location and general use of our principal properties as of January 28, 2023 that we consider to be material to our business and that we believe will meet our operational needs for the foreseeable future: Facility Location Owned/Leased Segment Approximate Square Feet Principal corporate office Columbus, Ohio Owned Corporate, U.S.
(2) Our DSW U.S. stores average approximately 20,300 square feet. Most of the store leases are for a fixed term with options for extension periods, exercisable at our option. (3) The Shoe Company and DSW stores in Canada average approximately 7,900 square feet.
Most of the store leases are for a fixed term with options for extension periods, exercisable at our option. (2) The Shoe Company and DSW stores in Canada average approximately 7,900 square feet. Most of the store leases are for a fixed term with options for extension periods, exercisable at our option.
Retail 178,000 Distribution center Columbus, Ohio Owned U.S. Retail 625,000 Fulfillment center (1) Columbus, Ohio Leased U.S. Retail 854,000 Distribution center Westampton, New Jersey Leased Brand Portfolio 683,000 U.S. retail stores (2) 508 various U.S. locations Leased U.S.
Retail and Other 178,000 Distribution center Columbus, Ohio Owned U.S. Retail and Other 625,000 East Coast Logistics Center Westampton, New Jersey Leased U.S. Retail and Brand Portfolio 683,000 U.S. retail stores (1) 501 various U.S. locations Leased U.S.
Removed
Most of the store leases are for a fixed term with options for extension periods, exercisable at our option. 18

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeTh e number of holders of record is based upon the actual number of holders registered at such date and does not include holders of shares in "street names" or persons, partnerships, associates, corporations, or other entities identified in security position listings maintained by depositories.
Biggest changeTh e number of holders of record is based upon the actual number of holders registered at such date and does not include holders of shares in "street names" or persons, partnerships, associates, corporations, or other entities identified in security position listings maintained by depositories. 19 Table of contents 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.
MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES COMMON SHARES Our Class A common shares are listed for trading on the NYSE under the ticker symbol "DBI." 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.
MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES COMMON SHARES Our Class A common shares are listed for trading on the NYSE under the ticker symbol "DBI." There is currently no public market for the Company's Class B common shares, but the Class B common shares can be converted into the Company's Class A common shares at the election of the holder on a share-for-share basis.
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, with $334.9 million of Class A common shares that remain authorized for repurchase under the program as of January 29, 2022.
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 comparison of the cumulative total returns for each investment assumes that $100 was invested on January 28, 2017 and that all dividends were reinvested. This comparison includes the period ended January 28, 2017 through the period ended January 29, 2022.
The comparison of the cumulative total returns for each investment assumes that $100 was invested on February 3, 2018 and that all dividends were reinvested. This comparison includes the period beginning February 3, 2018 and ended January 28, 2023.
As of March 14, 2022, there were 197 holders of record of our Class A common shares and 13 holders of record of our Class B common shares.
As of March 9, 2023, there were 201 holders of record of our Class A common shares and 13 holders of record of our Class B common shares.
During 2021, we did not repurchase any Class A common shares. The share repurchase program is subject to restrictions imposed by the ABL Revolver and 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.
A s of January 28, 2023 , $187.4 million of Class A common shares remained available for repurchase under the program. The share repurchase program may be suspended, modified or discontinued at any time, and we have no obligation to repurchase any amount of our Class A common shares under the program.
As of March 14, 2022, we were limited in our ability to pay dividends or repurchase stock above a maximum of $63.1 million. 19 PERFORMANCE GRAPH The following graph compares our cumulative total shareholder return on our Class A common shares with the cumulative total returns of the Standard and Poor's ("S&P") MidCap 400 Index and the S&P MidCap 400 Retail Index, both of which are published indices.
There are specific exceptions to these covenants including, in some cases, upon satisfying specified payment conditions based on availability. 20 Table of contents PERFORMANCE GRAPH The following graph compares our cumulative total shareholder return on our Class A common shares with the cumulative total returns of the Standard and Poor's ("S&P") MidCap 400 Index and the S&P MidCap 400 Retail Index, both of which are published indices.
Company / Index January 28, 2017 February 3, 2018 February 2, 2019 February 1, 2020 January 30, 2021 January 29, 2022 Designer Brands Inc. $ 100.00 $ 99.50 $ 141.35 $ 79.44 $ 69.46 $ 72.52 S&P MidCap 400 Index $ 100.00 $ 115.74 $ 112.95 $ 125.21 $ 148.32 $ 165.45 S&P MidCap 400 Retail Index $ 100.00 $ 101.40 $ 103.48 $ 102.42 $ 178.77 $ 181.07
Company / Index February 3, 2018 February 2, 2019 February 1, 2020 January 30, 2021 January 29, 2022 January 28, 2023 Designer Brands Inc. $ 100.00 $ 142.06 $ 79.84 $ 69.80 $ 72.88 $ 57.85 S&P MidCap 400 Index $ 100.00 $ 97.58 $ 108.18 $ 128.14 $ 142.95 $ 145.97 S&P MidCap 400 Retail Index $ 100.00 $ 102.05 $ 101.01 $ 176.31 $ 178.58 $ 164.63
Removed
DIVIDENDS The payment of dividends is subject to the restrictions imposed by the ABL Revolver and is at the discretion of our Board of Directors, which considers our expectations of future earnings, cash flow, financial condition, capital requirements, changes in taxation laws, general economic condition, and any other relevant factors.
Added
It is anticipated that dividends will be declared on a quarterly basis. On March 15, 2023, the Board of Directors declared a quarterly cash dividend payment of $0.05 per share for both Class A and Class B common shares.
Removed
Any share repurchases will be completed in the open market at times and in amounts considered appropriate based on price and market conditions. RESTRICTIONS The ABL Revolver contains covenants restricting our ability to pay dividends or repurchase stock. There are specific exceptions to these covenants including, in some cases, upon satisfying specified payment conditions.
Added
The dividend will be paid on April 14, 2023 to shareholders of record as of the close of business on March 31, 2023.
Added
Shares will be repurchased in the open market at times and in amounts considered appropriate based on price and market conditions.
Added
(in thousands, except per share amounts) (a) Total Number of Shares Purchased (b) Average Price Paid per Share (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 October 30, 2022 to November 26, 2022 (1) 6 $ 14.61 — $ 187,386 November 27, 2022 to December 31, 2022 — $ — — $ 187,386 January 1, 2023 to January 28, 2023 (1) 1 $ 9.09 — $ 187,386 7 $ 14.36 — (1) The total number of shares repurchased represents shares withheld in connection with tax payments due upon vesting of employee restricted stock awards.
Added
RESTRICTIONS The ABL Revolver contains customary covenants restricting our activities, including limitations on the ability to pay dividends or repurchase stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeRetail segment - DSW stores 508 519 Canada Retail segment: The Shoe Company stores 115 117 DSW stores 25 27 140 144 Total number of stores 648 663 22 RESULTS OF OPERATIONS The following table presents our consolidated results of operations with associated percentages of net sales: (amounts in thousands, except per share amounts) 2021 2020 Change Amount % of Net Sales Amount % of Net Sales Amount % Net sales $ 3,196,583 100.0 % $ 2,234,719 100.0 % $ 961,864 43.0 % Cost of sales (2,127,946) (66.6) (1,923,478) (86.1) (204,468) 10.6 % Gross profit 1,068,637 33.4 311,241 13.9 757,396 243.3 % Operating expenses (870,682) (27.2) (753,278) (33.7) (117,404) 15.6 % Income from equity investment 8,986 0.3 9,329 0.5 (343) (3.7) % Impairment charges (1,720) (0.1) (153,606) (6.9) 151,886 (98.9) % Operating profit (loss) 205,221 6.4 (586,314) (26.2) 791,535 NM Interest expense, net (32,129) (1.0) (23,694) (1.1) (8,435) 35.6 % Non-operating income (expenses), net (67) (0.0) 1,361 0.1 (1,428) NM Income (loss) before income taxes 173,025 5.4 (608,647) (27.2) 781,672 NM Income tax benefit (provision) (18,544) (0.6) 119,928 5.3 (138,472) NM Net income (loss) $ 154,481 4.8 % $ (488,719) (21.9) % $ 643,200 NM Basic and diluted earnings (loss) per share: Basic earnings (loss) per share $ 2.12 $ (6.77) $ 8.89 NM Diluted earnings (loss) per share $ 2.00 $ (6.77) $ 8.77 NM Weighted average shares used in per share calculations: Basic shares 73,024 72,198 826 1.1 % Diluted shares 77,268 72,198 5,070 7.0 % NM - Not meaningful NET SALES The following table summarizes net sales by segment: (dollars in thousands) 2021 2020 Change Amount % of Total Segment Net Sales Amount % of Total Segment Net Sales Amount % Comparable Sales % Segment net sales: U.S.
Biggest changeRetail segment - DSW stores 501 508 Canada Retail segment: The Shoe Company stores 113 115 DSW stores 25 25 138 140 Total number of stores 639 648 23 Table of contents RESULTS OF OPERATIONS The following table presents our consolidated results of operations with associated percentages of net sales: (amounts in thousands, except per share amounts) 2022 2021 Change Amount % of Net Sales Amount % of Net Sales Amount % Net sales $ 3,315,428 100.0 % $ 3,196,583 100.0 % $ 118,845 3.7 % Cost of sales (2,236,203) (67.4) (2,127,946) (66.6) (108,257) 5.1 % Gross profit 1,079,225 32.6 1,068,637 33.4 10,588 1.0 % Operating expenses (896,382) (27.1) (870,682) (27.2) (25,700) 3.0 % Income from equity investments 8,864 0.3 8,986 0.3 (122) (1.4) % Impairment charges (4,317) (0.1) (1,720) (0.1) (2,597) 151.0 % Operating profit 187,390 5.7 205,221 6.4 (17,831) (8.7) % Interest expense, net (14,874) (0.5) (32,129) (1.0) 17,255 (53.7) % Loss on extinguishment of debt and write-off of debt issuance costs (12,862) (0.4) — — (12,862) NM Non-operating expenses, net (130) — (67) — (63) 94.0 % Income before income taxes 159,524 4.8 173,025 5.4 (13,501) (7.8) % Income tax benefit (provision) 3,142 0.1 (18,544) (0.6) 21,686 NM Net income 162,666 4.9 154,481 4.8 8,185 5.3 % Net loss attributable to redeemable noncontrolling interest 10 — — — 10 NM Net income attributable to Designer Brands Inc. $ 162,676 4.9 % $ 154,481 4.8 % $ 8,195 5.3 % Earnings per share attributable to Designer Brands Inc.: Basic earnings per share $ 2.41 $ 2.12 $ 0.29 13.7 % Diluted earnings per share $ 2.26 $ 2.00 $ 0.26 13.0 % Weighted average shares used in per share calculations: Basic shares 67,603 73,024 (5,421) (7.4) % Diluted shares 72,101 77,268 (5,167) (6.7) % NM - Not meaningful 24 Table of contents NET SALES The following table summarizes net sales by segment: (dollars in thousands) 2022 2021 Change Amount % of Total Segment Net Sales Amount % of Total Segment Net Sales Amount % Comparable Sales % Segment net sales: U.S.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES As discussed in Note 1, Description of Business and Significant Accounting Policies , of the Consolidated Financial Statements included in this Form 10-K, the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the U.S. 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 consolidated financial statements and reported amounts of revenue and expenses during the reporting period.
CRITICAL ACCOUNTING ESTIMATES As discussed in Note 1, Description of Business and Significant Accounting Policies , of the Consolidated Financial Statements included in this Form 10-K, the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the U.S. 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 consolidated financial statements and reported amounts of revenue and expenses during the reporting period.
Fair value is the price a willing buyer would pay and is typically calculated using a discounted cash flow analysis. Where deemed appropriate, we may also utilize a market approach for estimating fair value. Impairment charges are calculated as the amount by which the carrying amount exceeds its fair value, but not to exceed the carrying value for goodwill.
Fair value is the price a willing buyer would pay and is typically calculated using a discounted cash flow analysis. Where deemed appropriate, we may also utilize a market approach for estimating fair value. Impairment charges are calculated as the amount by which the carrying amount exceeds its fair value, but not to exceed the carrying value.
In addition, we determined the fair values of the indefinite-lived intangibles were in excess of their carrying values and a 10% decrease in fair values would not result in a material impairment charge.
In addition, we determined that the fair values of the indefinite-lived intangibles were in excess of their carrying values and a 10% decrease in fair values would not result in a material impairment charge.
Risk Factors of this Form 10-K and included elsewhere in this Form 10-K. The following discussion includes a comparison of our results of operations and liquidity and capital resources for 2021 and 2020. Except where it may be useful in understanding 2021 results, we have omitted discussion of results for 2019, which may be found in Item 7.
Risk Factors of this Form 10-K and included elsewhere in this Form 10-K. The following discussion includes a comparison of our results of operations and liquidity and capital resources for 2022 and 2021. Except where it may be useful in understanding 2022 results, we have omitted discussion of results for 2020, which may be found in Item 7.
In addition, the ABL Revolver 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.
The ABL Revolver also contains customary covenants restricting certain activities, including limitations on our ability to sell assets, engage in acquisitions, enter into transactions involving related parties, incur additional debt, grant liens on assets, pay dividends or repurchase stock, and make certain other changes.
The amount of credit available is limited to a borrowing base based on, among other things, a percentage of the book value of eligible inventory and credit card receivables, as reduced by certain reserves.
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.
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.
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 reevaluate these significant factors and make adjustments where facts and circumstances dictate.
These estimates are highly subjective, and our ability to realize the future cash flows used in our fair value calculations is affected by factors such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance and changes in our business strategies. As of January 29, 2022, we had $93.7 million of goodwill within the U.S.
These estimates are highly subjective, and our ability to realize the future cash flows used in our fair value calculations is affected by factors such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance and changes in our business strategies. As of January 28, 2023, we had $93.7 million of goodwill within the U.S.
GROSS PROFIT The following table summarizes gross profit by segment: (dollars in thousands) 2021 2020 Change Amount % of Segment Net Sales Amount % of Segment Net Sales Amount % Basis Points Segment gross profit: U.S.
GROSS PROFIT The following table summarizes gross profit by segment: (dollars in thousands) 2022 2021 Change Amount % of Segment Net Sales Amount % of Segment Net Sales Amount % Basis Points Segment gross profit: U.S.
Comparable Sales Performance Metric- The following table presents the percent change in comparable sales for each segment and in total: 2021 2020 Change in comparable sales: U.S.
Comparable Sales Performance Metric- The following table presents the percent change in comparable sales for each segment and in total: 2022 2021 Change in comparable sales: U.S.
CAPITAL EXPENDITURE PLANS We expect to spend approximately $70.0 million to $80.0 million for capital expenditures in 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.
CAPITAL EXPENDITURE PLANS We expect to spend approximately $50.0 million to $70.0 million for capital expenditures in 2023. 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.
As of January 29, 2022, a change in our discount rate of 100 basis points would have changed the recorded operating lease assets and liabilities by approximately $19.7 million. 29 Policy Judgments and Estimates Effect if Actual Results Differ from Assumptions Income Taxes- We determine the aggregate amount of income tax provision or benefit to accrue and the amount that will be currently receivable or payable based upon tax statutes of each jurisdiction in which we do business.
As of January 28, 2023, a change in our discount rate of 100 basis points would have changed the recorded operating lease assets and liabilities by approximately $23.0 million. 30 Table of contents Policy Judgments and Estimates Effect if Actual Results Differ from Assumptions Income Taxes- We determine the aggregate amount of income tax provision or benefit to accrue and the amount that will be currently receivable or payable based upon tax statutes of each jurisdiction in which we do business.
Retail segment 55.0 % (34.9) % Canada Retail segment 20.1 % (26.0) % Brand Portfolio segment - direct-to-consumer channel 30.9 % 38.2 % Other NA (50.4) % Total 51.6 % (34.2) % NA - Not applicable We consider the percent change in comparable sales from the same previous year period, a primary metric commonly used throughout the retail industry, to be an important measurement for management and investors of the performance of our direct-to-consumer businesses.
Retail segment 2.0 % 55.0 % Canada Retail segment 28.8 % 20.1 % Brand Portfolio segment - direct-to-consumer channel 34.5 % 30.9 % Total 4.4 % 51.6 % We consider the percent change in comparable sales from the same previous year period, a primary metric commonly used throughout the retail industry, to be an important measurement for management and investors of the performance of our direct-to-consumer businesses.
INVESTING CASH FLOWS For 2021, the net cash used in investing activities was primarily due to capital expenditures relating to infrastructure and IT projects, new stores, and store improvements.
For 2021, the net cash used in investing activities was primarily due to capital expenditures of $33.0 million relating to infrastructure and IT projects, new stores, and store improvements.
In addition, state, local or foreign jurisdictions may enact tax laws that could result in further changes to taxation and materially affect our financial position and results of operations. As of January 29, 2022, our deferred tax assets were reserved with a valuation allowance of $70.8 million. We also had gross unrecognized tax benefits of $11.1 million.
In addition, state, local or foreign jurisdictions may enact tax laws that could result in further changes to taxation and materially affect our financial position and results of operations. As of January 28, 2023, our deferred tax assets were reserved with a valuation allowance of $14.0 million. We also had gross unrecognized tax benefits of $15.8 million.
FINANCING CASH FLOWS During 2021, the net cash used in financing activities was due to net payments of $100.0 million on the ABL Revolver and payments of $12.5 million on the Term Loan.
During 2021, the net cash used in financing activities was due to net payments of $100.0 million from our revolving lines of credit and payments of $12.5 million on the Term Loan.
We believe that cash generated from our operations, together with our current levels of cash and availability under our ABL Revolver, are sufficient to maintain our ongoing operations and fund capital expenditures over the next 12 months and beyond.
We believe that cash generated from our operations, together with our current levels of cash, as well as the availability of our ABL Revolver, are sufficient to maintain our ongoing operations, support seasonal working capital requirements, fund acquisitions and capital expenditures, and repurchase common shares under our share repurchase program over the next 12 months and beyond.
Retail segment inventory is accounted for using the retail inventory method and is stated at the lower of cost or market. Under the retail inventory method, the valuation of inventories at cost and the resulting gross profits are determined by applying a calculated cost-to-retail ratio to the retail value of inventories.
Under the retail inventory method, the valuation of inventories at cost and the resulting gross profits are determined by applying a calculated cost-to-retail ratio to the retail value of inventories.
To the extent that these future projections or our strategies change, the conclusion regarding impairment may differ from our current estimates. 28 Policy Judgments and Estimates Effect if Actual Results Differ from Assumptions Impairment of Goodwill and Other Indefinite Lived Intangible Assets- We evaluate goodwill and other indefinite lived intangible assets for impairment annually during our fourth quarter, or more frequently if an event occurs or circumstances change, such as material deterioration in performance or a significant and sustained decline in our stock price, that would indicate that impairment may exist.
Impairment of Goodwill and Other Indefinite Lived Intangible Assets- We evaluate goodwill and other indefinite lived intangible assets for impairment annually during our fourth quarter, or more frequently if an event occurs or circumstances change, such as material deterioration in performance or a significant and sustained decline in our stock price, that would indicate that impairment may exist.
In connection with this settlement, we incurred a $12.7 million loss on extinguishment of debt, comprised of a $6.9 million prepayment premium and a $5.7 million write-off of unamortized debt issuance costs, which will be recorded in the first quarter of 2022.
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, 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 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 consolidated financial statements. 27 We believe the following represent the most significant accounting policies, critical estimates and assumptions, among others, used in the preparation of our consolidated financial statements: Policy Judgments and Estimates Effect if Actual Results Differ from Assumptions Inventories- The U.S.
We believe the following represent the most significant accounting policies, critical estimates and assumptions, among others, used in the preparation of our consolidated financial statements: Policy Judgments and Estimates Effect if Actual Results Differ from Assumptions Inventories- The U.S. Retail segment inventory is accounted for using the retail inventory method, which is stated at the lower of cost or market.
Asset Impairment of Long-Lived Assets- We periodically evaluate the carrying amount of our long-lived assets, primarily property and equipment and operating lease assets, when events and circumstances warrant such a review to ascertain if any assets have been impaired.
If the reduction to inventories for markdowns, shrink, and aged inventories were to increase by 10%, cost of sales would increase by approximately $4.1 million. 29 Table of contents Policy Judgments and Estimates Effect if Actual Results Differ from Assumptions Asset Impairment of Long-Lived Assets- We periodically evaluate the carrying amount of our long-lived assets, primarily property and equipment and operating lease assets, when events and circumstances warrant such a review to ascertain if any assets have been impaired.
As of January 29, 2022, the ABL Revolver had a borrowing base of $400.0 million, with no outstanding borrowings and $4.9 million in letters of credit issued, resulting in $395.1 million available for borrowings. Term Loan- On August 7, 2020 , we also entered into a $250.0 million Term Loan.
As of January 28, 2023, the ABL Revolver had a borrowing base of $529.9 million, with $281.0 million in outstanding borrowings and $5.0 million in letters of credit issued, resulting in $243.9 million available for borrowings.
There are specific exceptions to these covenants including, in some cases, upon satisfying specified payment conditions. As of January 29, 2022, we were in compliance with all financial covenants. Refer to Note 11, Debt , of the Consolidated Financial Statements of this Form 10-K for further information about our debt arrangements.
There are specific exceptions to these covenants including, in some cases, upon satisfying specified payment conditions based on availability. As of January 28, 2023, we were in compliance with all financial covenants contained in the ABL Revolver.
Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended January 30, 2021, filed with the SEC on March 22, 2021. 20 EXECUTIVE OVERVIEW AND TRENDS IN OUR BUSINESS Despite the continuing challenges of the volatile market conditions and supply chain disruptions, our strong results for 2021 demonstrated our ability to be nimble and quickly adapt our business model.
Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended January 29, 2022, filed with the SEC on March 21, 2022. 21 Table of contents EXECUTIVE OVERVIEW AND TRENDS IN OUR BUSINESS For 2022, net sales increased 3.7% and comparable sales increased 4.4% over last year.
INCOME TAXES The effective tax rate changed to 10.7% for 2021 from 19.7% for 2020. The rate for 2021 is the result of maintaining a full valuation allowance on deferred tax assets while also recording net discrete tax benefits, primarily as a result of adjustments to our estimated 2020 return reflecting implemented tax strategies.
The rate for 2021 was the result of maintaining a full valuation allowance on deferred tax assets, while also recording net discrete tax benefits, primarily as a result of adjustments to our estimated 2020 return reflecting implemented tax strategies. 26 Table of contents 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 c apital expenditures.
As a result, we may have future write-downs or adjustments to inventories, receivables, long-lived assets, intangibles, goodwill, and the valuation allowance on deferred tax assets. 21 FINANCIAL SUMMARY AND OTHER KEY METRICS • Net sales increased to $3.2 billion for 2021 from $2.2 billion for 2020 . • G ross profit as a percentage of net sales was 33.4% for 2021, as compared to 13.9% for 2020 and higher than the pre-COVID-19 rate, which was 28.6% for 2019. • Net income for 2021 was $154.5 million, or $2.00 per diluted share, which included net after-tax benefits of $23.2 million , or $0.30 per diluted share, primarily related to the change in valuation allowance on deferred tax assets, restructuring charges, and target acquisition costs.
Net income for 2021 was $154.5 million, or $2.00 per diluted share, which included net after-tax benefits of $23.2 million, or $0.30 per diluted share, primarily related to the change in valuation allowance on deferred tax assets, partially offset by restructuring charges and target acquisition costs.
In connection with this settlement, we incurred a $12.7 million loss on extinguishment of debt, comprised of a $6.9 million prepayment premium and a $5.7 million write-off of unamortized debt issuance costs, which will be recorded in the first quarter of 2022. The settlement of the Term Loan was made using proceeds from borrowings under the ABL Revolver.
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. 28 Table of contents Refer to Note 12, Debt , of the Consolidated Financial Statements of this Form 10-K for further information about our debt arrangements.
DEBT ABL Revolver- On August 7, 2020, we replaced the Credit Facility with the ABL Revolver, which provides a revolving line of credit of up to $400.0 million. Our ABL Revolver matures in August 2025 and is secured by substantially all of our personal property assets, including a first priority lien on credit card receivables and inv entory.
Our 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 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.
Beginning with the third quarter of 2020, comparable sales do not include the Other segment due to no longer having activity in the Other segment. 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.
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- At the end of the last two fiscal years, we had the following number of stores: January 28, 2023 January 29, 2022 U.S.
The following table presents the key categories of our consolidated statements of cash flows: (in thousands) 2021 2020 Change Net cash provided by (used in) operating activities $ 171,429 $ (153,793) $ 325,222 Net cash provided by (used in) investing activities (35,028) 2,631 (37,659) Net cash provided by (used in) financing activities (121,490) 122,954 (244,444) Effect of exchange rate changes on cash balances (33) 1,225 (1,258) Net increase (decrease) in cash, cash equivalents, and restricted cash $ 14,878 $ (26,983) $ 41,861 OPERATING CASH FLOWS The change in net cash provided by (used in) operations was driven by the net income recognized during 2021 versus a net loss incurred during 2020 as a result of the impacts of the COVID-19 pandemic, after adjusting for non-cash activity including impairment charges and the change in deferred taxes.
The following table presents the key categories of our consolidated statements of cash flows: (in thousands) 2022 2021 Change Net cash provided by operating activities $ 201,426 $ 171,429 $ 29,997 Net cash used in investing activities (88,117) (35,028) (53,089) Net cash used in financing activities (128,479) (121,490) (6,989) Effect of exchange rate changes on cash balances (523) (33) (490) Net increase (decrease) in cash, cash equivalents, and restricted cash $ (15,693) $ 14,878 $ (30,571) 27 Table of contents OPERATING CASH FLOWS The increase in net cash provided by operations was largely driven by the receipt of $120.3 million of our income tax receivable from the Internal Revenue Service during 2022.
Retail segment, which is also the reporting unit, and $15.5 million in indefinite-lived trademarks and tradenames within the Canada Retail segment. We performed a qualitative impairment assessment for goodwill.
Retail segment, which is also the reporting unit, and $14.9 million in indefinite-lived tradenames within the Canada Retail segment. In addition, we have an immaterial amount of goodwill as a result of the Topo acquisition in the fourth quarter of 2022 that is based on certain preliminary valuations and analysis.
Elimination of intersegment gross loss (profit) consisted of the following: (dollars in thousands) 2021 2020 Elimination of intersegment activity: Net sales recognized by Brand Portfolio segment $ (93,956) $ (59,818) Cost of sales: Cost of sales recognized by Brand Portfolio segment 62,039 42,028 Recognition of intersegment gross profit for inventory previously purchased that was subsequently sold to external customers during the current period 23,497 20,239 $ (8,420) $ 2,449 24 OPERATING EXPENSES Operating expenses increased by $117.4 million during 2021 as compared to 2020, primarily driven by the implementation of temporary leaves of absence without pay for a significant number of our employees and reducing pay for nearly all employees not placed on temporary leave in response to the COVID-19 pandemic for most of the first half of 2020.
Retail segment were primarily driven by moving our digital fulfillment activities from our Ohio location to our New Jersey location, which resulted in recognizing approximately $16.0 million of additional distribution costs, including accelerated depreciation and termination costs. 25 Table of contents The net recognition (elimination) of intersegment gross profit consisted of the following: (in thousands) 2022 2021 Recognition (elimination) of intersegment activity: Net sales recognized by Brand Portfolio segment $ (87,041) $ (93,956) Cost of sales: Cost of sales recognized by Brand Portfolio segment 58,234 62,039 Recognition of intersegment gross profit for inventory previously purchased that was subsequently sold to external customers during the current period 32,322 23,497 $ 3,515 $ (8,420) OPERATING EXPENSES Operating expenses increased by $25.7 million during 2022 as compared to last year, primarily driven by an increase in store payroll and costs as a result of severance activity, the dissolution of a joint venture, and the CEO transition.
The following table summarizes our material undiscounted cash requirements for 2022 and future fiscal years thereafter, and provides reference for each item to the relevant note of the Consolidated Financial Statements of this Form 10-K: (in thousands) Note Reference 2022 Future Fiscal Years Thereafter Total Debt maturities Note 11 $ — 231,250 $ 231,250 Fixed minimum lease payments Note 12 $ 229,051 654,618 $ 883,669 Noncancelable purchase obligations Note 13 $ 9,101 12,285 $ 21,386 Guaranteed minimum royalty payments Note 13 $ 34,659 222,029 $ 256,688 On February 8, 2022, we settled in full the $231.3 million principal amount outstanding under our senior secured term loan ("Term Loan").
The following table summarizes our material undiscounted cash requirements for 2023 and future fiscal years thereafter, and provides reference for each item to the relevant note of the Consolidated Financial Statements of this Form 10-K: (in thousands) Note Reference 2023 Future Fiscal Years Thereafter Total Debt maturities Note 12 $ — $ 281,035 $ 281,035 Fixed minimum lease payments Note 13 $ 215,908 $ 718,801 $ 934,709 Noncancelable purchase obligations Note 14 $ 13,831 $ 10,589 $ 24,420 Guaranteed minimum royalty payments Note 14 $ 31,159 $ 195,496 $ 226,655 We are committed to a cash management strategy that maintains liquidity to adequately support the operation of the business, pursue our growth strategy, and withstand unanticipated business volatility, including the impacts of the global economic conditions on our results of operations.
IMPAIRMENT CHARGES During 2021, we recorded impairment charges of $1.7 million for abandoned equipment we are replacing and for the sublease of an abandoned leased space. As a result of the material reduction in net sales and cash flows due to the temporary closure of all of our stores during 2020, we performed an impairment analysis at the store level.
During 2021, we recorded impairment charges of $1.7 million, including $1.2 million in the U.S. Retail segment for abandoned equipment we replaced and $0.5 million in the Brand Portfolio segment for the sublease of an abandoned leased space.
In addition, net sales were impacted by permanent store closures, including those serviced in the Other segment. The Brand Portfolio segment net sales were higher in 2021 than 2020 due to increased orders as our retailer customers also recover, but net sales were still below pre-COVID-19 levels.
Retail and Canada Retail segments, with the Canada Retail segment also impacted by mandated closures and restrictions in certain key markets. In addition, wholesale sales in the Brand Portfolio segment were higher during 2022, as compared to last year, due to increased orders as our retailer customers had similar results as our retail segments.
This was partially offset by higher spend on working capital as our business recovered from the impacts of the COVID-19 pandemic and the measures we implemented in 2020 to manage our working capital to preserve liquidity, including delaying vendor and landlord payments while we renegotiated terms, reducing inventory orders, and significantly cutting costs.
This was partially offset by higher spend on working capital due to earlier receipts with normal vendor payment terms this year compared to last year when we experienced shipping delays and extended vendor payment terms as a result of the impacts of the COVID-19 pandemic.
Retail $ 2,769,706 84.2 % $ 1,800,323 78.5 % $ 969,383 53.8 % 55.0% Canada Retail 234,809 7.1 % 182,659 8.0 % 52,150 28.6 % 20.1% Brand Portfolio 286,024 8.7 % 248,646 10.8 % 37,378 15.0 % 30.9% Other — — % 62,909 2.7 % (62,909) NM NA Total segment net sales 3,290,539 100.0 % 2,294,537 100.0 % 996,002 43.4 % 51.6% Elimination of intersegment net sales (93,956) (59,818) (34,138) 57.1 % Consolidated net sales $ 3,196,583 $ 2,234,719 $ 961,864 43.0 % NA - Not applicable NM - Not meaningful 23 The improvement in sales, including increases in comparable sales and total consolidated net sales, during 2021 over 2020 was a result of the temporary closure of stores in 2020 during our peak spring selling season in response to the COVID-19 pandemic and significantly reduced customer in-store traffic since re-opening.
Retail $ 2,791,513 82.0 % $ 2,769,706 84.2 % $ 21,807 0.8 % 2.0% Canada Retail 283,241 8.3 % 234,809 7.1 % 48,432 20.6 % 28.8% Brand Portfolio 327,715 9.7 % 286,024 8.7 % 41,691 14.6 % 34.5% Total segment net sales 3,402,469 100.0 % 3,290,539 100.0 % 111,930 3.4 % 4.4% Elimination of intersegment net sales (87,041) (93,956) 6,915 (7.4) % Consolidated net sales $ 3,315,428 $ 3,196,583 $ 118,845 3.7 % The increase in net sales during 2022 over last year was primarily due to the increase in comparable sales across all segments, primarily related to the prolonged COVID-19 pandemic in 2021 that resulted in significantly reduced store traffic in the U.S.
Removed
Our operating profit in 2021 surpassed pre-COVID-19 levels with a 61% growth when compared to 2019 and we continued to make progress by: • Growing our market share in historically underpenetrated categories, including athletic, men’s and kids’; • Maintaining our leading position in the seasonal and dress categories; and • Leaning further into our in-house design and sourcing capabilities as we move towards our goal of becoming a builder of brands.
Added
During 2022, net sales from our Owned Brands increased 32.1% over last year, with Owned Brands representing 24.4% of consolidated net sales as compared to 19.2% for last year.
Removed
As we look ahead to our strategic growth, we have organized our efforts around three pillars - Customer, Brand, and Speed: • Customer- More than ever, our customers have a great desire for products and experiences, and we are adding resources to our digital, information technology ("IT") and analytics teams to understand precisely what they want and what can be improved to provide the best possible experience.
Added
The increase in net sales from our Owned Brands demonstrates progress toward our long-term goal of doubling net sales from our Owned Brands by 2026 (using 2021 net sales as a baseline). Gross profit as a percentage of sales for 2022 was lower when compared to last year's record-setting results.
Removed
Undertaking these actions will enable us to better understand our customers, provide improved service, and target new demographics in ways that we have never deployed before.
Added
This decrease is primarily attributable to a more promotional retail environment in 2022, as the industry experienced a shift from tighter inventory positions to excess inventory, resulting in us also being more promotional.
Removed
We are also developing new ideas for how we can provide more value to our VIP rewards members, who we believe continue to be the lifeblood of our business and our largest competitive differentiator. • Brand- Controlling our own brand destiny is critical for our growth.
Added
In addition, we strategically increased our clearance assortment in order for us to attract customers who are more value-oriented, and this allowed us to manage our inventory more effectively and proactively. However, gross profit as a percentage of sales for 2022 was higher than the pre-COVID-19 rate in 2019; this increase was primarily driven by the increased Owned Brands penetration.
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As we continue to design some of the best brands in the industry, Vince Camuto, Jessica Simpson, Lucky Brand and JLO Jennifer Lopez, we are combining that with our strong direct-to-consumer distribution through our physical footprint in North America and digital infrastructure.
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At the beginning of 2023, we completed the acquisition of the Keds business from Wolverine World Wide, Inc. This expands our Owned Brands' reach into casual and athleisure footwear in the wholesale and direct-to-consumer e-commerce channels, supplementing the additions of Le Tigre and Topo during 2022.
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We are also partnering with some of the top national brands in the industry to offer one of the largest and broadest assortments. We remain focused on investing in our top 50 brands and will continue to prioritize growing our own brands. • Speed- Moving quickly is of the utmost importance to consumers.
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This acquisition also marks our first Owned Brand wholesale business within the kids' footwear segment and supports our Owned Brand strategy.
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We are developing processes to deliver products more quickly. Fulfillment of digital customer orders currently takes five to seven business days and we are working to improve that to two to three calendar days while simultaneously finding efficiencies to contain costs. We are optimizing our current infrastructure and expanding our delivery partnerships.
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EFFECTS OF INFLATION AND GLOBAL ECONOMIC CONDITIONS A downturn in global economic conditions, most notably inflationary pressures, rising interest rates, changes in employment levels, significant foreign currency volatility, and the growing concerns of a potential recession, may adversely impact discretionary consumer income levels and spending.
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We are also working to improve collaboration through technology and processes across our organization and to gain additional efficiencies in our overall development cycle. IMPACT OF THE COVID-19 PANDEMIC ON OUR RESULTS OF OPERATIONS As we continue to closely monitor the ongoing COVID-19 pandemic, our top priority remains protecting the health and safety of our customers and associates.
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Consumer spending on discretionary items, including our products, generally declines during periods of economic uncertainty, when disposable income is reduced, or when there is a reduction in consumer confidence. Moreover, we are unable to predict the severity of macroeconomic uncertainty, whether or when such circumstances may improve or worsen, or the full impact such circumstances could have on our business.
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As this continues to be an unprecedented period of uncertainty, we have made adjustments and may continue to adjust our operational plans, inventory controls, and liquidity management, as well as make changes to our expense and capital expenditure plans.
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In 2022, the U.S. experienced significantly heightened inflationary pressures, which we expect to continue into 2023. We are subject to inflationary pressures, including increases in the costs of merchandise, transportation, and compensation, which we offset in the first half of 2022 with pricing increases and being less promotional.
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While trends improved during 2021 as compared to 2020, 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 will continue.
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However, competitive pricing pressure has been exacerbated by a more promotional retail environment as the industry experienced a shift from tighter inventory positions to excess inventory and as macroeconomic conditions impact discretionary consumer spending. During the second half of 2022, our net sales and gross profit declined as we became more promotional under this competitive landscape.
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For instance, we have continued to experience reduced customer in-store traffic and net sales when compared to pre-COVID-19 periods, and it is unclear when customer behavior will return to pre-COVID-19 patterns, if at all. The ongoing and prolonged nature of the COVID-19 pandemic may lead to further adjustments to our operations.
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These factors could require us to enact mitigating operating efficiency measures that could have a material adverse effect on business, operations, and results of operations.
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As such, the ultimate impacts of the COVID-19 pandemic on our businesses will depend on future developments, including the availability of labor, global supply chain disruptions, new variants of COVID-19 and the severity thereof, and the global availability and use of vaccines or palliatives, all of which are highly uncertain and cannot be predicted.
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IMPACT OF COVID-19 The COVID-19 pandemic has had an adverse effect on our results of operations and may continue to impact the global economy, including disrupted supply chain operations globally, temporary factory closures, vessel, container and other transportation shortages, and port congestion.
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Net loss f or 2020 was $488.7 million , or a loss of $6.77 per diluted share, which included net after-tax charges of $207.1 million , or $2.87 per diluted share, primarily related to impairment and restructuring charges, a settlement gain with a vendor, and the valuation allowance established against deferred tax assets.
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Such disruptions have at times reduced our availability of inventory while at other times have caused excess inventory as the timing of inventory receipts has been disrupted. Disruptions may continue especially in geographic locations where government responses may result in mandated quarantines and closures of facilities and operations we depend on.
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Number of Stores- As of the end of 2021 and 2020, we had the following number of stores: January 29, 2022 January 30, 2021 U.S.
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The COVID-19 pandemic has and is likely to continue to result in social, economic, and labor instability in the markets in which we and our third-party vendors operate.
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During 2021, sales significantly recovered from 2020 levels, although we have continued to experience reduced customer in-store traffic and consolidated net sales remain lower when compared to pre-COVID-19 periods. During a portion of 2021, the Canada Retail segment was impacted by further temporary closures and restrictions in certain key markets.
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The long-term economic impact and near-term financial impacts of COVID-19, including, but not limited to, possible impairment, restructuring, or other charges, as well as the overall business on our business and results of operations, cannot be reliably estimated at this time due to the uncertainty of future developments. 22 Table of contents FINANCIAL SUMMARY AND OTHER KEY METRICS • Net sales increased to $3.3 billion for 2022 from $3.2 billion for 2021 . • G ross profit as a percentage of net sales was 32.6% for 2022, a decrease from 33.4% in 2021, but an increase from the 2019 pre-COVID-19 rate of 28.6%. • Net income attributable to Designer Brands Inc. for 2022 was $162.7 million, or $2.26 per diluted share, which included net after-tax benefits of $29.0 million, or $0.41 per diluted share, primarily related to the change in valuation allowance on deferred tax assets, partially offset by the loss on extinguishment of debt and write-off of debt issuance costs, restructuring and termination costs, CEO transition costs, impairment charges, and acquisition costs.
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Retail $ 933,555 33.7 % $ 242,786 13.5 % $ 690,769 284.5 % 2,020 Canada Retail 76,728 32.7 % 28,651 15.7 % 48,077 167.8 % 1,700 Brand Portfolio 66,774 23.3 % 36,393 14.6 % 30,381 83.5 % 870 Other — — % 962 1.5 % (962) NM NM Total segment gross profit 1,077,057 32.7 % 308,792 13.5 % 768,265 248.8 % 1,920 Elimination of intersegment gross loss (profit) (8,420) 2,449 (10,869) Consolidated gross profit $ 1,068,637 33.4 % $ 311,241 13.9 % $ 757,396 243.3 % 1,950 NM - Not meaningful The improvement in gross profit was primarily driven by increased sales during 2021 as compared to 2020.
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These increases were partially offset by the impact of a shift towards being more promotional in the U.S. Retail and Brand Portfolio segments during the second half of 2022, net store closures since the end of 2021, and the unfavorable impact from foreign currency translation of the Canada Retail segment net sales.
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We addressed the temporary closure of stores in 2020, and the subsequent reduction in customer in-store traffic upon store re-openings, with aggressive promotional activity. These actions resulted in higher inventory reserves, increased shipping costs associated with higher digital penetration, and deleveraged distribution and fulfillment, store occupancy, and royalty expenses on lower sales volume during 2020.
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Retail $ 904,583 32.4 % $ 933,555 33.7 % $ (28,972) (3.1) % (130) Canada Retail 99,121 35.0 % 76,728 32.7 % 22,393 29.2 % 230 Brand Portfolio 72,006 22.0 % 66,774 23.3 % 5,232 7.8 % (130) Total segment gross profit 1,075,710 31.6 % 1,077,057 32.7 % (1,347) (0.1) % (110) Net recognition (elimination) of intersegment gross profit 3,515 (8,420) 11,935 Consolidated gross profit $ 1,079,225 32.6 % $ 1,068,637 33.4 % $ 10,588 1.0 % (80) The increase in consolidated gross profit was primarily driven by increased sales during 2022 over last year, partially offset by higher freight and distribution costs and a shift towards being more promotional in the U.S.
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During 2021, tight inventory positions resulted in fewer promotions. Accordingly, gross profit as a percentage of net sales for 2021 was higher by 480 basis points than the pre-COVID-19 rate, which was 28.6% for 2019.
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Retail and Brand Portfolio segments during the second half of 2022. For the Canada Retail segment, the shift toward being more promotional happened later in 2022 resulting in less of an impact to the full fiscal year. Higher distribution costs within the U.S.
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The Brand Portfolio segment's gross profit as a percentage of net sales significantly improved during 2021 compared to 2020 but remained below pre-COVID-19 levels when compared to 2019 due to the deleverage impacts of lower net sales.
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Operating expenses as a percentage of net sales slightly improved to 27.1% in 2022 compared to 27.2% in 2021, due to the improvement in net sales over last year as we leveraged our fixed costs. IMPAIRMENT CHARGES During 2022, we recorded impairment charges of $4.3 million, primarily in the Brand Portfolio segment resulting from subleases of abandoned leased spaces.
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During the second half of 2020, we re-opened our stores, discontinued the furlough program, and restored pay for our associates that had taken pay reductions, but made reductions to our workforce. During 2021, we had an increase in store payroll costs in line with the increase in net sales and higher incentive compensation expense.
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INTEREST EXPENSE, NET For 2022, interest expense, net, decreased by $17.3 million over last year, primarily due to the termination of the senior secured term loan ("Term Loan") in the first quarter of 2022, which had a higher interest rate than the ABL Revolver. The decrease was partially offset by a higher average debt balance during 2022 over 2021.
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Operating expenses as a percentage of sales improved to 27.2% in 2021 compared to 33.7% in 2020, but was still higher than the pre-COVID-19 rate, which was 25.1% as a percentage of sales in 2019, primarily due to higher direct marketing expense and incentive compensation on lower sales.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeA hypothetical 10% movement in the exchange rates could result in a $2.2 million foreign currency translation fluctuation, which would be recorded in accumulated other comprehensive loss within the consolidated balance sheets, and $3.3 million of foreign currency revaluation, which would be recorded in non-operating income (expenses), net, within the consolidated statements of operations. 30
Biggest changeA hypothetical 10% movement in the exchange rates could result in a change of $4.2 million of foreign currency revaluation, which would be recorded in non-operating income (expenses), net, within the consolidated statements of operations and an immaterial impact to other comprehensive loss. 31 Table of contents
The impact of a hypothetical 100 basis point increase in interest rates on our outstanding borrowings would not result in a material amount of additional expense over a 12-month period based on the balance as of January 29, 2022.
The impact of a hypothetical 100 basis point increase in interest rates on our revolving line of credit would not result in a material amount of additional expense over a 12-month period based on the balance as of January 28, 2023.
Borrowings under both the Term Loan and the ABL Revolver are based on variable rates of interest, which expose us to interest rate market risks, particularly during a period of rising interest rates.
Borrowings and letters of credit issued under the ABL Revolver accrue interest based on variable rates of interest, which expose us to interest rate market risks, particularly during a period of rising interest rates.
We currently do not utilize hedging instruments to mitigate these market risks. INTEREST RATE RISK As of January 29, 2022, we had $231.3 million outstanding on our Term Loan, which was settled in full on February 8, 2022, using proceeds from borrowings under the ABL Revolver.
We currently do not utilize hedging instruments to mitigate these market risks. INTEREST RATE RISK As of January 28, 2023 , we had $281.0 million outstanding on our revolving line of credit under our ABL Revolver.

Other DBI 10-K year-over-year comparisons