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What changed in Designer Brands Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Designer Brands Inc.'s 2023 and 2024 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 2024 report.

+302 added−312 removedSource: 10-K (2024-03-25) vs 10-K (2023-03-16)

Top changes in Designer Brands Inc.'s 2024 10-K

302 paragraphs added · 312 removed · 226 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

56 edited+24 added−16 removed16 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 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.
Biggest changeAll full-time and part-time associates are eligible for: • Company paid time off, military, and bereavement pay. • Generous product discounts at DSW, American Eagle Outfitters/Aerie, and American Signature/Value City Furniture. • Free counseling for all associates, their dependents, and their family members, including access to licensed counselors, work/life balance support, and bereavement specialists. • Free accredited general education college courses as well as discounted tuition offerings through multiple partner schools. • Discounted legal support 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.
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").
Online orders from the U.S. can also be fulfilled from our distribution center located in New Jersey ("East Coast Logistics Center") , which is a shared facility with the Brand Portfolio segment , or directly from our vendors (referred to as "drop ship").
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).
This reporting schedule is followed by many national retail companies and typically results in a 52-week fiscal year (including 2022), but occasionally will contain an additional week resulting in a 53-week fiscal year (including 2023).
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.
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 roundtable chats, and conduct follow-up activities to better understand associate feedback.
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.
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. The Topo acquisition provides us with expanded capabilities within the athletic footwear market.
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.
Our fiscal year ends on the Saturday nearest to January 31. References to a fiscal year (e.g., "2023") refer to the calendar year in which the fiscal year begins.
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.
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 BRANDS The Brand Portfolio segment designs, develops, and sources footwear and accessories of our Owned Brands for the sale of wholesale merchandise to our retail segments and our other retailer customers.
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.
In addition to disaggregating our net sales between Owned Brands and national brands, we disaggregate our net sales for our retail segments into four primary categories: women's footwear, men's footwear, kids' footwear, and accessories and other.
Our e-commerce platforms offer customers convenient, 24/7 access to our products through our websites, www.dsw.com, www.dsw.ca, and www.theshoecompany.ca, with mobile-optimized sites, and our mobile DSW application. Our omni-channel capabilities allow customers to order a wide range of styles, sizes, widths and categories. Online orders in the U.S. and Canada can be fulfilled from any one of our stores.
Our e-commerce platforms offer customers convenient, 24/7 access to our products through our websites, including mobile-optimized sites, and our mobile DSW application. Our omni-channel capabilities allow customers to order a wide range of styles, sizes, widths and categories. Online orders in the U.S. and Canada can be fulfilled from any one of our stores.
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.
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: 2023 2022 Number of VIP members at end of the fiscal year (in millions) 32.1 32.1 Percentage of retail segments' net sales generated from VIP members 90 % 89 % DISTRIBUTION AND FULFILLMENT For our U.S.
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.
All groups are inclusive and open to any associate who wants to join, and associates can join as many groups as they choose. Our BRGs, CIGs, and Diversity Councils provide a unique strategic perspective based on shared experience, background, and allyship while promoting diversity and belonging in our workplace and community in alignment with our business goals.
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.
This demonstrates our top-down approach to furthering our goals of cultivating open dialogue, expanding diversity training, sharing best practices wit h other companies, and engaging our Board in the evaluation of our progress .
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.
Our associates strive every day to create a welcoming and inclusive environment for themselves and our customers to advance our mission of inspiring self-expression. 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, 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.
In addition, the countries where our products are manufactured or imported from may, from time to time, impose additional duties, 7 Table of contents tariffs, or other restrictions on our imports or adversely modify existing restrictions.
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.
RETAIL SEGMENTS BANNERS We offer a wide assortment of dress, casual, and athletic footwear and accessories for women, men and kids under the following banners: • 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. • 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.
Upon exiting the Company, associates who voluntarily leave the business are provided an exit survey to help us measure satisfaction and engagement and identify the factors that may have contributed to pursuing another opportunity.
Upon exiting the Company, associates who voluntarily leave the business are provided with an exit survey to help us measure satisfaction and engagement, in addition to identifying the factors that may have contributed to pursuing another opportunity.
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.
As of February 3, 2024, we employed approximately 14,000 associates worldwide, approximately 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.
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.
Refer to Note 3 , Revenue , of the consolidated financial statements of this Form 10-K for the disaggregation of net sales. 1 Table of contents The following table presents certain data about the sourcing of our merchandise for our retail segments: 2023 2022 Number of unrelated third-party merchandise vendors at end of fiscal year 412 420 Percentage of purchases from: Brand Portfolio segment sourced Owned Brands 9 % 8 % Top three national brand vendors 21 % 22 % LOYALTY PROGRAMS We invite customers to join our VIP rewards programs, which enable members to earn points toward discounts on future purchases.
Our VIP rewards programs provides timely customer insights and creates stronger customer engagement, while driving a higher-than-average level of customer spend.
Our VIP rewards programs provide timely customer insights and create stronger customer engagement, while driving a higher-than-average level of customer spend.
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.
Formal ways for associates, on a voluntary basis, to be involved and ignite innovation and positive change include: • BRGs - associate-led groups organized around a common diversity dimension to foster an inclusive and engaging work environment for all. • CIGs - associate-led groups based on a common passion or interest to drive a sense of community and shared purpose. • Diversity Councils - associate-led groups organized to create a sense of inclusion and belonging for those who work in our stores and logistics centers.
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.
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; • cultivate an associate-centric culture where our associates feel empowered, valued, inspired, and included; • 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.
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.
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, and the sale of branded products through our direct-to-consumer e-commerce sites for the Vince Camuto, Keds, Hush Puppies, and Topo brands.
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.
We believe that paying our associates 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. To this end, we take several steps to ensure pay rates are fair, competitive, and based on job-related factors.
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.
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.
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.
Community - As the places where our associates live and work are vitally important 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.
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.
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.
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.
Diversity, Equity & Inclusion ("DE&I") - Support organizations whose key constituents align with the diversity dimensions represented by our Business Resource Groups ("BRGs"). 3.
To assist in facilitating a smooth transition, Mr. Rawlins will remain employed under the terms of a transition and consulting agreement through April 1, 2023 and, for the 12-month period thereafter, will serve as a strategic advisor to the Company and the Board of Directors. HUMAN CAPITAL MANAGEMENT We believe the strength of our workforce is critical to our success.
As previously disclosed, Mr. Rawlins commenced service as a strategic advisor to the Company and the Board effective April 1, 2023 and will continue in this role through April 1, 2024 under the terms of a transition and consulting agreement. HUMAN CAPITAL MANAGEMENT We believe the strength of our workforce is critical to our success.
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.
We compete against a diverse group of manufacturers and retailers, including department stores, online retailers, mall-based shoe stores, national chains, independent shoe retailers, single-brand specialty retailers, brand-oriented discounters, multi-channel specialty retailers, and brand suppliers.
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.
We consider our trademarks, service marks, and domains to have significant value and to be important to building our name recognition. 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.
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.
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 nearly 240 resources, including 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.
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 also earn 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 direct-to-consumer e-commerce sites for the Vince Camuto, Keds, Hush Puppies, and Topo brands.
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.
Our DE&I principles are also reflected in our associate training programs, which address our policies against harassment, bullying, and bias in the workplace. 6 Table of contents We strive to maintain a diverse and inclusive workforce.
We continue to develop opportunities for associate connection and engagement in the evolving workplace environment by listening to our associates and taking actions on what is most important and impactful to them. GOVERNMENT REGULATIONS Our business activities are global and subject to various federal, state, local, and foreign laws, rules, and regulations.
We continue to develop opportunities for associate connection and engagement in the evolving workplace environment by listening to our associates and taking actions on what is most important and impactful to them. One of the things our associates tell us is important to them is recognition.
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.
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. 5 Table of contents PHILANTHROPY THROUGH DESIGNER BRANDS FOUNDATION We are committed to good corporate citizenship.
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.
Two Ten Footwear Foundation - Two Ten provides scholarships and financial aid as well as free counseling and community resources to people working in the footwear industry. 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.
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.
These plans include prescription and vision insurance, as well as: • Concierge care coordinators and nurses who can assist with clinical support for health conditions, locate high-quality physicians, advocate to resolve insurance billing issues, connect members to available community resources, and answer member benefit questions. • Free unlimited access to U.S. board-certified physicians, via phone or video, for general medical, dermatology, and mental health services. • Specialty prescription drug medications, with many at no cost. • Concierge support and access to fertility centers across the U.S. as well as up to two cycles of in vitro fertilization or other fertility services in addition to necessary fertility medication and testing. • Expert nurse care coordinator support provided through our maternity program. • Medical access travel benefits for those who must travel greater than 100 miles from home to obtain access to covered medical care.
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.
Using 2021 net sales as a baseline, we have a long-term goal of doubling the net sales from our Owned Brands by 2026 for all of our segments combined, while maintaining our net sales of national brands in our retail segments.
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.
Hometown Partnerships - From annual United Way fundraisers to 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 live, serve, and work. During the 2023 holiday season, associates globally participated in giving back to their local communities.
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.
Howe, Designer Brands' 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.
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.
In addition, our wholesale retailer customers sell shoes purchased from competing footwear suppliers with brands that are well known. 3 Table of contents CHIEF EXECUTIVE OFFICER TRANSITION In January 2023, we announced our succession process relating to the Company's Chief Executive Officer ("CEO") role whereby our former CEO, Roger Rawlins, stepped down from his role as CEO and as a member of the Company's Board of Directors (the "Board") effective April 1, 2023, at which time Doug Howe, who previously served as Executive Vice President of the Company and President of DSW, assumed the CEO role and joined the Board.
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.
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. 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.
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.
On February 4, 2023, we acquired the Keds business ("Keds"), including the Keds brand, inventory, and inventory-related accounts payable, from Wolverine World Wide, Inc. The Keds business designs, sources, and sells branded footwear at wholesale to retailers and international distributors and through its direct-to-consumer e-commerce sites.
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
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.
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.
Refer to Note 3 , Revenue , of the consolidated financial statements of this Form 10-K, for the disaggregation of net sales. 2 Table of contents Equity Investments and 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.
Ultimately, the partnership is aimed at creating careers and investing in diverse, talented, aspiring designers to become the future of our industry.
In the fall of 2023, we launched the FIRST JEM, the inaugural shoe from JEMS by PENSOLE, in select stores and online. Ultimately, this partnership is aimed at creating careers and investing in diverse, talented, and aspiring designers to become the future of our industry. Each step we take brings us closer to realizing our vision of DE&I.
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.
For the fourth consecutive year, Designer Brands has been recognized for its LGBTQ+ inclusion efforts receiving the Equality 100 Award by earning the top score of 100 in the Human Rights Campaign Foundation's 2023-2024 Corporate Equality Index. Designer Brands has also been recognized by Forbes as one of "The Best Employers for Diversity" for 2023.
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.
The following table presents the percentages of the Brand Portfolio segment's purchases of merchandise units sourced by country: 2023 2022 China 76 % 76 % Vietnam 10 % 9 % India 5 % 4 % Cambodia 5 % 1 % Brazil 3 % 9 % All other foreign locations 1 % 1 % COMPETITION The footwear market is highly competitive with few barriers to entry.
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.
In July 2022, we acquired a 33.3% ownership interest in Le Tigre, which manages the Le Tigre brand. We are also party to a license agreement with Le Tigre, which grants us the exclusive right to design, source, and sell Le Tigre-branded footwear.
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.
As a result, they come to life internally for our associates as they are reflected in how: "we love what we do; we own what we do; we do what's right; and we belong." We provide all associates with the opportunity to share their opinions and feedback in relation to their employment experience through engagement surveys performed on a regular basis across all business segments.
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.
We have a 40.0% ownership interest in ABG-Camuto, a joint venture that owns the intellectual property rights of Vince Camuto and other brands. We are party to a licensing agreement with ABG-Camuto, which grants us the exclusive right to design, source, and sell footwear and handbags under the brands that ABG-Camuto owns.
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.
Not only do we strive to create positive impacts within our organization, but we aim to better the communities in which we conduct business. In 2023, we officially launched our charitable Designer Brands Foundation to expand our corporate giving.
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.
We also invest in pay processes that allow us to assess whether associates with similar roles and experience earn equal pay for comparable work. ASSOCIATE ENGAGEMENT Our culture is a towering strength of Designer Brands, and that culture is built upon and codified by a set of unified values that guide how we aspire to operate as a collective organization.
D'Wayne Edwards, President of Pensole Lewis College of Business & Design ("PLC"). Located in Detroit, PLC is the first and only Historically Black College & University ("HBCU") in Michigan and the first HBCU with a focus on design.
With a goal of increasing diversity in the footwear design world, in 2022, we partnered with legendary footwear designer and president of Pensole Lewis College of Business and Design, Dr. D'Wayne Edwards.
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.
DBI Gives, our philanthropic Community Interest Group ("CIG"), aims to inspire community involvement and enhance associate engagement through volunteering and three primary areas of partnership: 1. 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.
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.
We also have a 40% ownership interest in ABG-Camuto, which owns the Vince Camuto ® trademark, and a 33.3% ownership interest in Le Tigre, which owns the Le Tigre ® trademark. As of February 3, 2024, we have approximately 900 trademark registrations and pending applications in the U.S., Canada, and internationally.
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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.
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ASSORTMENT In the retail segments, 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." We believe that offering a robust assortment of our Owned Brands alongside top national brands within the retail segments provides our customers with a unique assortment and allows us to lean into our integrated business model for providing value.
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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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The Brand Portfolio segment has five customers that made up 40.0% of its segment net sales in 2023, 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.
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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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We expect this long-term goal will result in approximately one-third of our total net sales coming from Owned Brands by 2026. During 2023 and 2022, the net sales of Owned Brands represented 25.8% and 25.5%, respectively, of consolidated net sales, compared to a baseline of 19.6% from 2021.
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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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In addition, we own the licensing rights for footwear and handbags of the Lucky Brand and the licensing rights for footwear of the Jessica Simpson brand and, beginning in 2023, the Hush Puppies brand. Acquisitions- On December 13, 2022, we acquired a 79.4% ownership interest in Topo Athletic LLC ("Topo").
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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.
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Compensation- • We strive to provide market competitive pay 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 be competitive for logistics center talent, we increased the start rates in 2023 and continually monitor local pay practices. • We monitor pay equity and invest in pay processes that allow us to assess whether associates with similar roles and experience earn equal pay for comparable work. • We provide a Compensation Essentials training module that educates and equips managers to facilitate healthy conversations about compensation.
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The policy was deemed to no longer be necessary in October 2022; however, we continue to follow all applicable COVID-19 local paid leave regulations. • In 2022, we added a new paid time off benefit for our approximately 9,000 U.S. part-time associates that enables them to take time off with pay if sick, to care for a family member, or to enjoy a break from work. • In 2022, we added a medical access travel benefit that reimburses up to $4,000 per year for eligible travel expenses when it is necessary for an associate or dependent enrolled in a medical plan to travel 100 miles or more from home to obtain access to covered medical care. • 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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Every manager is expected to complete this training. • Our incentive plans provide additional cash compensation upon the achievement of results that meet or exceed defined goals for eligible store management, logistics centers, and corporate associates. • We provide retirement benefits with a safe harbor 401(k) plan that includes an employer matching contribution of up to 4% of associate contributions. 4 Table of contents Health & Wellbeing- We understand the importance of taking care of our associates and that every associate's journey is unique.
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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.
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Our inclusive benefits approach provides support and resources needed to care for them and their loved ones. We invest in comprehensive health and wellbeing benefits that help attract and retain the talent necessary to achieve our goals, some of which are highlighted below.
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Full-time associates receive short-term disability income replacement pay, as well as paid parental leave, and jury duty pay.
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Comprehensive health insurance coverage is available to full-time and Affordable Care Act eligible part-time associates through multiple medical plans.
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During the 2022 holiday season, with the cost of food on the rise, our associates helped address hunger and food insecurity by collecting and donating food items to their local food banks and packing meals for those in need. Altogether, our associates collected/packed over 74,000 meals.
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All full-time associates are eligible for: • Company subsidized dental insurance. • Company-provided life and accidental death and dismemberment insurance. • Pay for short-term disability, parental leave, and jury duty. • Voluntary benefits (long-term disability, accident, hospital indemnity and critical illness) and flexible spending accounts. • Adoption assistance with reimbursement of up to $10,000 of eligible expenses for each adoption. • Up to $5,250 in tuition reimbursement annually, plus access to partner schools who offer capped annual tuition to receive a degree at little to no cost when combined with our reimbursement.
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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.
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During 2023, over 8,000 associates completed approximately 80,000 learning experiences through our online learning platfor m. We invest resources in professional development and growth as a means of improving associate performance, engagement, and retention.
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Designer Brands has also been recognized by Forbes as one of "The Best Employers for Diversity," "The World's Best Employers" and "The World's Top Female-Friendly Companies." In 2022, Designer Brands announced an investment of $2.0 million into advancing action-oriented DE&I through a partnership with Pensole and legendary footwear designer Dr.
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The Designer Brands Foundation's mission is to advance empowerment of individuals, removing barriers, and helping them put their best foot forward in the diverse communities in which we live, serve, and work. The Designer Brands Foundation features three primary areas of focus: 1. Empowerment - Support organizations that prioritize empowerment and build self-confidence without discrimination. 2.
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In this new partnership, Designer Brands invested in the first Black-owned footwear factory in the U.S. – JEMS by Pensole – to produce shoes designed by PLC graduate students, to be sold exclusively at DSW. Together with Pensole, we will provide designers with opportunities to offer new products directly to consumers.
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Since partnering with Soles4Souls in 2018, we are proud to have donated over 9 million pairs of shoes, including 1.7 million pairs in 2023. In 2023, we focused our store register donation efforts in support of Soles4Souls, generating over $2.1 million in customer-funded donations, which is more than three times the monetary donations we made to Soles4Souls in 2022. 2.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe face risks inherent in purchasing from suppliers with foreign operations, such as: public health threats, including the COVID-19 pandemic; economic and political instability in countries where these suppliers are located; international hostilities or acts of war or terrorism affecting the U.S. or foreign countries from which our merchandise is sourced; increases in shipping costs; transportation delays and interruptions, including increased inspections of import shipments by domestic authorities; work stoppages; expropriation or nationalization; changes in foreign government administration and governmental policies; changes in import duties or quotas; compliance with trade and foreign tax laws; and local business practices, including compliance with foreign laws and with domestic and international labor standards.
Biggest changeRisks may also include, among others, public health threats, which has in the past materially adversely impacted our business; inclement weather and natural disasters; international hostilities, acts of war, including the ongoing war in Ukraine and the Israel-Hamas war, the recent militant attacks on cargo vessels in the Red Sea, which ultimately could adversely impact supplier deliveries or freight costs, or terrorism; increases in shipping costs; transportation delays and interruptions, including increased inspections of import shipments by domestic authorities or the occurrence of international trade disruptions; work stoppages; expropriation or nationalization; changes in foreign government administration and governmental policies; changes in import duties or quotas; cost and difficulties associated with managing operations outside of the U.S.; possible adverse tax consequences from changes in tax laws or the unfavorable resolution of tax assessments or audits; and greater difficulty in enforcing intellectual property rights.
We have a long-term goal of doubling the net sales from our Owned Brands by 2026 (using 2021 net sales as a baseline), while also maintaining our sales levels of national brands. We expect this long-term goal will result in approximately one-third of our total net sales coming from our Owned Brands by 2026.
We have a long-term goal of doubling the net sales from our Owned Brands by 2026 (using 2021 net sales as a baseline), while also maintaining our levels of net sales of national brands. We expect this long-term goal will result in approximately one-third of our total net sales coming from our Owned Brands by 2026.
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.
In addition, any significant disruption of our data center could have a material adverse effect on our operations dependent on those systems, specifically, our store and e-commerce operations, our distribution centers, and our merchandising team.
Additionally, we maintain other confidential, proprietary, or otherwise sensitive information relating to our business and our third parties.
Additionally, we maintain other confidential, proprietary, or otherwise sensitive information relating to our business and third parties.
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.
We compete against a diverse group of manufacturers and retailers, including department stores, online retailers, mall-based shoe stores, national chains, independent shoe retailers, single-brand specialty 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.
We do not expect a trading market for the Company's Class B common shares to develop and, therefore, any investment in the Class B common shares may be effectively illiquid, unless such shares are converted into the Company's Class A common shares. There is currently no public market for the Company's Class B common shares.
We do not expect a trading market for the Company's Class B common shares to develop and, therefore, any investment in the Company's Class B common shares may be effectively illiquid, unless such shares are converted into the Company's Class A common shares. There is currently no public market for the Company's 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.
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 Class B common shares. Accordingly, there may be a limited number of buyers if a holder decides to sell its Class B common shares.
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 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 approval of acquisitions or dispositions of assets.
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.
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 that we need, at prices and on terms that are acceptable to us, then we could experience product delays and shortages.
Risks associated with these initiatives include any increased public focus, including by governmental and nongovernmental organizations, new laws and regulations, increased costs associated with sustainability efforts and/or compliance with laws and regulations, as well as increased pressure to expand our CSR and sustainability disclosures in these areas, make commitments, set targets or establish additional goals and take actions to such targets and goals.
Risks associated with these initiatives include any increased public focus, including by governmental and nongovernmental organizations, new laws and regulations, increased costs associated with sustainability efforts and/or compliance with laws and regulations, as well as increased pressure to expand our CSR and sustainability disclosures in these areas, make commitments, set targets, or establish additional goals and take actions to achieve such targets and goals.
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.
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 our or our vendors' security measures can provide absolute security.
In addition, we may incur material liabilities and remediation costs as a result of an information security breach, including potential liability for stolen customer or associate data, repairing system damage or providing credit monitoring or other benefits to customers or associates affected by the breach.
In addition, we may incur material liabilities and remediation costs as a result of an information security breach, including potential liability for stolen customer or associate data, costs relating to repairing system damage, or costs of providing credit monitoring or other benefits to customers or associates affected by the breach.
Achieving these priorities depends in part on us executing our strategies successfully, and the initiatives that we implement in connection with these strategies may not resonate with our customers. We may not be able to realize, in whole or in part, the anticipated benefits of these strategies or within the expected time frames.
Achieving these priorities depends in part on us executing our growth strategies successfully, and the initiatives that we implement in connection with these strategies may not resonate with our customers. We may not be able to realize the anticipated benefits of these growth strategies in whole, in part, or within the expected time frames.
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.
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, any of which may not be prevented by our efforts to secure our computer systems.
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.
Entities owned by or controlled by Jay L. Schottenstein, the Executive Chairman of our Board, 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.
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.
This may affect the price a holder would receive upon such sale. Alternatively, a holder of such shares could convert the shares 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.
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.
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, or 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 the brands that we offer.
Our operating results depend on the orderly operation of our receiving, distribution, and fulfillment processes, which in turn depends on vendors' adherence to shipping schedules and our effective management of our facilities.
Our operating results depend on the orderly operation of our receiving, distribution, and fulfillment processes, which in turn depend on vendors' adherence to shipping schedules and our effective management of our facilities.
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 rapid changes in consumer preferences and trends, which are dictated by lifestyle, fashion, and season, and may shift quickly.
The issuance of preferred shares could have the effect of delaying, deterring, or preventing a change in control and could adversely affect the voting power of our common shares.
The issuance of preferred shares could have the effect of delaying, deterring, or preventing a change in control of the Company and could adversely affect the voting power of our common shares.
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.
Businesses, including our suppliers, can easily launch e-commerce websites 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.
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.
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 or experience reputational harm, which could have a material adverse effect on our business.
We also depend on a variety of information systems to effectively process customer orders and other data, for digital marketing activities and for electronic communications among our associates, customers, prospective customers, and vendors. Some of our third-party service providers, such as identity verification and payment processing providers, also regularly have access to customer data.
We also depend on a variety of information systems to effectively process customer orders and other data, for digital marketing activities, and for electronic communications with our associates, customers, prospective customers, and vendors. Some of our third-party service providers, such as identity verification and payment processing providers, also regularly have access to customer data.
Our success depends on our ability to remain competitive with respect to assortment, quality, convenience, and value. The performance of our competitors, as well as a change in their promotional and pricing approaches as a result of the current economic environment, marketing activities, and other business strategies, could have a material adverse effect on our business.
Our success depends on our ability to remain competitive with respect to assortment, fashion trends, quality, convenience, and value. The performance of our competitors, as well as a change in their promotional and pricing approaches as a result of the current economic environment, marketing activities, and other business strategies, could have a material adverse effect on our business.
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.
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 experiences, greater ease of buying goods, low or no shipping fees, faster shipping times, and more favorable return policies.
If these relationships were to be impaired, we may be unable to obtain a sufficient assortment of merchandise at attractive prices or respond promptly to changing fashion trends, either of which could have a material adverse effect on our business and financial performance.
If these relationships were to be impaired, we may be unable to obtain a sufficient assortment of merchandise at attractive prices or respond promptly to rapidly changing trends, either of which could have a material adverse effect on our business and financial performance.
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.
We could also face potential claims, investigations, regulatory proceedings, liability, and litigation, and could 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.
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.
Actual or anticipated attacks may cause us to incur increased costs, including costs to deploy additional personnel and protection technologies, train associates, pay higher insurance premiums, and engage third-party specialists for additional services.
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
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.
Failure to deliver quality products to our customers on a timely basis and any associated damage to our reputation could have a material adverse impact on our business and results of operations.
Failure by us to deliver quality products to our customers on a timely basis and any associated damage to our reputation could have a material adverse impact on our business and results of operations.
An information security breach involving confidential and personal data could damage our reputation, our customers' willingness to purchase from us, and our vendors' willingness to supply or provide services to us.
An information security breach involving confidential and personal data could damage our reputation, adversely affect our customers' willingness to purchase from us, and adversely affect our vendors' willingness to supply or provide services to us.
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 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.
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 IT infrastructure, including any third-party hardware or software, resulting in downtime or other technical issues; inability to respond to technological changes, such as those related to artificial intelligence; credit card fraud; or other information security breaches.
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.
The value of the brands we sell may also depend on the success of our corporate social responsibility ("CSR") and sustainability initiatives, which require Company-wide coordination and alignment.
The number of people who access the Internet through devices other than personal computers, including mobile phones, smartphones, handheld computers such as notebooks and tablets, video game consoles, and television set-top devices, has increased dramatically in the past few years.
The number of people who access the Internet through devices other than personal computers, including mobile phones, smartphones, handheld computers such as notebooks and tablets, video game consoles, and television set-top devices, has increased dramatically in recent years.
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.
The smaller screen size, functionality, and memory associated with smartphones, laptops, and tablets may make using our websites and purchasing our products online more difficult. The versions of our websites developed for these devices and our mobile app may not be compelling to consumers.
We rely on associates, contractors and other third parties who may attempt to circumvent our security measures in order to obtain such information and may purposefully or inadvertently cause a breach involving such information.
We rely on associates, contractors, and other third parties who may attempt to circumvent our security measures in order to obtain personal information or other sensitive data and may purposefully or inadvertently cause a breach involving such information.
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.
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. 10 Table of contents 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.
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.
Additionally, our major retailer customers for our Brand Portfolio segment 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 our business.
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.
We may not anticipate all of the changing demands on our operations, and events beyond our control may occur, including disruptions in operations due to public health threats, 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.
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.
In addition, the California Privacy Rights Act ("CPRA") took effect in January 2023 (with a look-back for certain requirements to January 2022), which amends and expands the CCPA and places additional restrictions on the "sharing" of personal information for purposes of cross-context behavioral advertising.
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.
If we or our third-party service providers experience security breaches that result in a decline in marketplace performance, availability problems, or the loss of, corruption of, unauthorized access to, or disclosure of personal data or confidential information, customers may become unwilling to provide us with the information necessary for such customers to make purchases on our e-commerce websites, and our reputation and market position could be harmed.
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.
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, integrate new businesses from transition service arrangements, and prevent any information security breaches.
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.
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.
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.
Upon an event of default that is not cured or waived within the applicable cure period, in addition to other remedies that may be available to the lenders, our obligations may be accelerated, outstanding letters of credit may be required to be cash collateralized, and remedies may be exercised against the collateral.
In the event we experience an information security breach, our insurance may not be sufficient to cover the impact to our business.
If we experience an information security breach, our insurance may not be sufficient to cover the impact to 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.
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.
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 business depends on our ability to obtain products from our vendors, including third-party manufacturers and national brand vendors, on a timely basis, on acceptable terms, and to our specifications.
For example, the California Consumer Privacy Act of 2018 ("CCPA"), which took effect on January 1, 2020, imposes certain restrictions and disclosure obligations on businesses that collect personal information about California residents and provides for a private right of action, as well as penalties for noncompliance.
For example, the California Consumer Privacy Act of 2018 ("CCPA") imposes certain restrictions and disclosure obligations on businesses that collect personal information about California residents and provides for a private right of action, as well as penalties for noncompliance.
While we aim to comply with applicable data protection laws and obligations in all material respects, there is no assurance that we will not be subject to claims that we have violated such laws and obligations, will be able to successfully defend against such claims, or will not be subject to significant fines and penalties in the event of non-compliance.
While we aim to comply with applicable data protection laws and obligations in all material respects, we could be subject to claims that we have violated such laws and obligations, we may not be able to successfully defend against such claims, and we could be subject to significant fines and penalties in the event of non-compliance.
State laws are changing rapidly, and new legislation proposed or enacted in a number of other states imposes, or has the potential to impose, additional obligations on companies that process confidential, sensitive and personal information, and will continue to shape the data privacy environment nationally. The U.S. federal government is also significantly focused on privacy matters.
State laws are changing rapidly, and new legislation proposed or enacted in a number of other states imposes, or has the potential to impose, additional obligations on companies that process confidential, sensitive and personal information, and will continue to shape the data privacy environment nationally.
In the event that our rewards members do not continue to shop, we fail to add new members, the number of members decreases, or our marketing is not effective in driving customer traffic, such event could have a material adverse effect on our business.
If our rewards members decrease their purchase frequency or do not continue to shop with us, we fail to add new members, the number of members decreases, or our marketing is not effective in driving customer traffic, such event could have a material adverse effect on our business.
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.
Our amended and restated articles of incorporation authorize our Board 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.
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.
During 2023, three key national brand vendors together supplied approximately 21% of our retail segments 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.
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.
We are subject to additional state privacy regulations, including the Virginia Consumer Data Protection Act, the Colorado Privacy Act, the Connecticut Data Privacy Act, and the Utah Consumer Privacy Act, which regulate the processing of "personal data" regarding their respective residents and which grant residents certain rights with respect to their personal data.
Future acquisitions of and investments in new businesses, such as our recent acquisitions of Topo and the Keds business, could disrupt our ongoing business and adversely impact our financial condition and results of operations. From time to time, we may acquire or invest in businesses or partnerships that we believe could complement our business or offer growth opportunities.
Future acquisitions of and investments in new businesses and brands and other growth strategies could disrupt our ongoing business and adversely impact our financial condition and results of operations. From time to time, we may acquire or invest in businesses, or we may license brands that we believe could complement our business and offer growth opportunities.
We do not intend to list the Class B common shares on any securities exchange or any automated quotation system. As a result, there can be no assurance that a secondary market will develop, and we do not expect any market makers to participate in a secondary market.
We do not intend to list the Class B common shares on any securities exchange or any automated quotation system. As a result, a secondary market for the Company's Class B common shares may not develop, and we do not expect any market makers to participate in a secondary market.
As of January 28, 2023, the Schottenstein Affiliates beneficially owned approximately 23% of the Company's outstanding common shares, representing approximately 58% of the combined voting power, consisting of, in the aggregate, 7.0 million Class A common shares (which are entitled to one vote per share) and 7.7 million Class B common shares (which are entitled to eight votes per share).
As of February 3, 2024, the Schottenstein Affiliates beneficially owned approximately 26% of the Company's outstanding common shares, representing 62% of the combined voting power, consisting of, in the aggregate, 7.1 million Class A common shares (which are entitled to one vote per share) and 7.7 million Class B common shares (which are entitled to eight votes per share).
We do not exert direct control over the manufacturers' operations and cannot guarantee that any third-party manufacturer will have sufficient production capacity, meet our production deadlines, or meet our product safety, social compliance, or quality standards.
We do not exert direct control over our vendors' operations and cannot guarantee that any vendor will have sufficient production capacity, meet our delivery expectations, or meet our product safety, social compliance, or quality standards.
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.
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. The violation of labor or other laws by any one of our vendors could have a material adverse effect on our business.
The CCPA provides for civil penalties for violations and creates a private right of action for certain data breaches that is expected to increase data breach litigation. It remains unclear how various provisions of the CCPA will be interpreted and enforced.
The CCPA provides for civil penalties for violations and creates a private right of action for certain data breaches that is expected to increase data breach litigation.
Failure to mitigate these risks could reduce e-commerce sales, damage our reputation, and have a material adverse effect on our business. Our implementation of an ERP software solution and other IT systems could result in significant disruptions to our operations. We are in the process of implementing certain financial modules of a new ERP and other IT systems.
Failure to mitigate these risks could reduce e-commerce sales, damage our reputation, and have a material adverse effect on our business. The implementation of new or updated IT systems could result in significant disruptions to our operations.
In addition, the integration process may strain our financial and managerial controls and reporting systems and procedures and may also result in the diversion of management and financial resources from core business objectives.
In addition, the integration process may strain our financial and managerial controls and reporting systems and procedures and may also result in the diversion of management and financial resources from core business objectives. Our integration efforts may not be successful, or we may not realize the anticipated benefits after we complete our integration efforts.
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.
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.
Our amended and restated articles of incorporation provide that the Schottenstein Affiliates are under no obligation to communicate or offer any corporate opportunity to us.
Opportunities may arise in the area of potential competitive business activities that may be attractive to the Schottenstein Affiliates and us. Our amended and restated articles of incorporation provide that the Schottenstein Affiliates are under no obligation to communicate or offer any corporate opportunity to us.
If we are unable to successfully manage these changes as we implement these systems, including harmonizing our systems, data, processes and reporting analytics, our ability to conduct, manage, and control routine business functions could be adversely affected.
If we are unable to successfully manage changes as we implement new or updated systems, including harmonizing our systems, data, processes, and reporting analytics, our ability to conduct, manage, and control routine business functions could be adversely affected. In addition, we could incur material, unanticipated expenses, including additional costs related to implementation.
In the event that our strategies do not meet customer expectations or are not differentiated from our competitors' offerings, it may have a material adverse effect on our business. In addition, these efforts could place increased demands on our financial, managerial, operational, and administrative resources.
If our growth strategies do not meet customer expectations or are not differentiated from our competitors' offerings, this may have a material adverse effect on our business. In addition, these efforts could place increased demands on our financial, managerial, operational, and administrative resources. In addition, we may from time to time evaluate and pursue other strategic initiatives, investments, or acquisitions.
Difficulties in implementing new or upgraded information systems or significant system failures could disrupt our operations and have a material adverse effect on our business and results of operations. As a result of the implementation of this new ERP system, we will undergo significant changes in our processes and internal controls.
Difficulties in implementing new or upgraded information systems or significant system failures could disrupt our operations and have a material adverse effect on our business and results of operations.
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.
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.
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.
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.
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.
Our IT systems are an integral part of our strategies for efficiently operating our business, managing operations, and protecting against security risks related to our electronic processing and transmitting of confidential customer and associate data.
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. Consequently, it is possible that, should we need to access any additional funds from our ABL Revolver, it may not be available in full.
The amount of credit available under the ABL Revolver 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 interests of the Schottenstein Affiliates may differ from or be opposed to the interests of other shareholders, and their level of ownership and voting power in the Company may have the effect of delaying or preventing a subsequent change in control that may be favored by other shareholders.
The interests of the Schottenstein Affiliates may differ from or be opposed to the interests of other shareholders, and the Schottenstein Affiliates' level of ownership and voting power in the Company may have the effect of delaying or preventing a subsequent change in control of the Company that may be favored by other shareholders. 17 Table of contents The Schottenstein Affiliates engage in a variety of businesses, including, but not limited to, business and inventory liquidations, apparel companies, and real estate investments.
Our failure to comply with privacy laws and regulations, as well as other legal obligations, could have a material adverse effect on our business. State, federal, and foreign governments have enacted and are continuing to enact laws and regulations governing the collection, use, retention, sharing, transfer, and security of personally identifiable information and data.
State, federal, and foreign governments have enacted and are continuing to enact laws and regulations governing the collection, use, retention, sharing, transfer, and security of personally identifiable information and data.
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.
While we maintain business interruption and property insurance, if any of the 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.
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.
Additionally, fluctuations in foreign currency exchange rates may negatively impact our financial results. With a substantial portion of our merchandise being imported from foreign countries, any of these events could result in our failure to obtain merchandise in a timely manner, which ultimately could have a material adverse effect on our business, financial condition, or results of operations.
We also are dependent on the interoperability of our sites with popular mobile operating systems that we do not control, such as iOS and Android, and any changes in such systems that degrade the functionality of our sites or mobile app, limit or discontinue our access to a particular platform, or give preferential treatment to competitive products or services, could adversely affect the usage of our sites on mobile devices.
If it is more difficult for our customers to buy products from us on their mobile devices, or if our customers choose not to buy products from us on their mobile devices or to use mobile products that do not offer access to our websites, our customer growth could be harmed, which could have a material adverse effect on our business, financial condition, and results of operations. 9 Table of contents We are also dependent on the interoperability of our websites with popular mobile operating systems that we do not control, such as iOS and Android, and any changes in such systems that degrade the functionality of our websites or mobile app, limit or discontinue our access to a particular platform, or give preferential treatment to competitive products or services, could adversely affect the usage of our websites on mobile devices.
Until we make substantial progress with our integration efforts, we also face the risk that we may not be able to effectively manage the business and achieve planned results.
We cannot ensure that all of our integration efforts will be completed on a timely basis, as planned, or without substantial expense, delay, or other operational problems. Until we make substantial progress with our integration efforts, we also face the risk that we may not be able to effectively manage the business and achieve planned results.
The acquisitions of Topo and the Keds business, or other strategic investments or acquisitions, may not create value and may harm our brand and adversely affect our business, financial condition, and results of operations. 11 Table of contents Our growth strategies could strain our resources and have a material adverse effect on our business and financial performance.
These strategic initiatives, investments, or acquisitions could involve various inherent risks and the benefits sought may not be realized, or these strategic initiatives, investments, or acquisitions may not create value or may harm our brand and adversely affect our business, financial condition, and results of operations. 11 Table of contents The loss or disruption of IT services could affect our operations and have a material adverse effect on our business.
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.
In addition, negative claims or publicity, including on social media, regarding celebrities with whom we have license and endorsement arrangements 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.
For example, in the fourth quarter of 2022, we acquired a 79.4% ownership interest in Topo, and in the first quarter of 2023, we acquired the Keds business, which includes the use of a transition services arrangement as we work toward integrating the Keds business into our existing infrastructure.
For example, in the first quarter of 2023, we acquired Keds and in the third quarter of 2023, we licensed the Hush Puppies brand, which both include the use of a transition services arrangement as we work toward integration into our existing infrastructure.

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Item 2. Properties

Properties — owned and leased real estate

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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.
Biggest changeRetail 9,958,000 Canada retail stores (2) 143 various Canadian locations Leased Canada Retail 1,114,000 Showrooms Six various U.S. locations Leased Brand Portfolio 94,000 Foreign sourcing offices One location in China and one location in Brazil Leased Brand Portfolio 117,000 (1) Our DSW U.S. stores average approximately 20,000 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.
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 7,800 square feet. Most of the store leases are for a fixed term with options for extension periods, exercisable at our option.
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.
Retail 178,000 Distribution center Columbus, Ohio Owned U.S. Retail 625,000 East Coast Logistics Center Westampton, New Jersey Leased U.S. Retail and Brand Portfolio 683,000 U.S. retail stores (1) 499 various U.S. locations Leased 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.
ITEM 2. PROPERTIES The following table summarizes the location and general use of our principal properties as of February 3, 2024 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 and U.S.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

9 edited+1 added−2 removed3 unchanged
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.
Biggest changeThe 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.
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.
The comparison of the cumulative total returns for each investment assumes that $100 was invested on February 2, 2019 and that all dividends were reinvested. This comparison includes the period beginning February 2, 2019 and ended February 3, 2024.
RESTRICTIONS The ABL Revolver contains customary covenants restricting our activities, including limitations on the ability to pay dividends or repurchase stock.
RESTRICTIONS The ABL Revolver and the Term Loan contain customary covenants restricting our activities, including limitations on the ability to pay dividends or repurchase stock.
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.
SHARE REPURCHASE PROGRAM On August 17, 2017, the Board authorized the repurchase of an additional $500.0 million of Class A common shares under our share repurchase program, which was added to the $33.5 million remaining from the previous authorization. A s of February 3, 2024 , $87.7 million of Class A common shares remained available for repurchase under the program.
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.
As of March 18, 2024, there were 191 holders of record of our Class A common shares and 12 holders of record of our Class B common shares.
(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.
The following table sets forth the Class A common shares repurchased during the three months ended February 3, 2024: (in thousands, except per share amounts) (a) Total Number of Shares Purchased (1) (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 29, 2023 to November 25, 2023 55 $ 10.07 — $ 87,677 November 26, 2023 to December 30, 2023 78 $ 8.80 — $ 87,677 December 31, 2023 to February 3, 2024 59 $ 8.42 — $ 87,677 192 $ 9.06 — (1) The total number of shares repurchased represents shares withheld in connection with tax payments due upon vesting of employee restricted stock awards.
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.
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. Shares will be repurchased in the open market at times and in amounts considered appropriate based on price and market conditions.
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.
On March 14, 2024, the Board declared a quarterly cash dividend payment of $0.05 per share for both Class A and Class B common shares. The dividend will be paid on April 12, 2024 to shareholders of record as of the close of business on March 29, 2024.
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
Company / Index February 2, 2019 February 1, 2020 January 30, 2021 January 29, 2022 January 28, 2023 February 3, 2024 Designer Brands Inc. $ 100.00 $ 56.20 $ 49.14 $ 51.30 $ 42.75 $ 38.23 S&P MidCap 400 Index $ 100.00 $ 110.86 $ 131.31 $ 146.48 $ 151.24 $ 162.50 S&P MidCap 400 Retail Index $ 100.00 $ 98.98 $ 172.76 $ 174.98 $ 161.91 $ 176.94
Removed
The dividend will be paid on April 14, 2023 to shareholders of record as of the close of business on March 31, 2023.
Added
DIVIDENDS The payment of any future dividends is at the discretion of our Board 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. We anticipate declaring dividends on a quarterly basis.
Removed
Shares will be repurchased in the open market at times and in amounts considered appropriate based on price and market conditions.

Item 7. Management's Discussion & Analysis

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

47 edited+26 added−30 removed32 unchanged
Biggest changeThe 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.
Biggest changeFINANCIAL SUMMARY AND OTHER KEY METRICS For 2023: • Net sales decreased to $3.1 billion from $3.3 billion last year. • Gross profit as a percentage of net sales was 31.7% compared to 32.6% last year. • Net income attributable to Designer Brands Inc. was $29.1 million, or $0.46 per diluted share, which included net after-tax charges of $14.0 million, or $0.22 per diluted share, primarily related to restructuring and integration costs, impairment charges, and CEO transition costs, compared to $162.7 million, or $2.26 per diluted share, last year, which included net after-tax benefits of $29.0 million, or $0.41 per diluted share, primarily related to the change in valuation allowance on deferred tax assets, partially offset by the loss on extinguishment of debt and write-off of debt issuance costs, restructuring and termination costs, impairment charges, and CEO transition costs.
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.
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.
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.
Consumer spending on discretionary items, including our products, generally declines during periods of economic uncertainty, when disposable income is reduced, or when there is a reduction in consumer confidence. We are unable to predict the severity of macroeconomic uncertainty, whether or when such circumstances may improve or worsen, or the full impact such circumstances could have on our business.
The shrink reserve is calculated as a percentage of sales from the last physical inventory date, based on both historical experience and recent physical inventory results, less amounts realized. Aged inventory may be written down using estimated liquidation values and cost of disposal based on historical experience.
The shrink reserve is calculated as a percentage of net sales from the last physical inventory date, based on both historical experience and recent physical inventory results, less amounts realized. Aged inventory may be written down using estimated liquidation values and cost of disposal based on historical experience.
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.
These factors ultimately could require us to enact mitigating operating efficiency measures that could have a material adverse effect on business, operations, and results of operations.
Termination of Term Loan - On February 8, 2022, we settled in full the $231.3 million principal amount outstanding on that date under our Term Loan.
Termination of Previous Term Loan - On February 8, 2022, we settled in full the $231.3 million principal amount outstanding on that date under our Previous Term Loan.
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.
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 2023 and 2022. Except where it may be useful in understanding 2023 results, we have omitted discussion of results for 2021, which may be found in Item 7.
FINANCING CASH FLOWS During 2022, the net cash used in financing activities was due to the payment of $238.2 million for the settlement of the Term Loan, the repurchase of 10.7 million Class A common shares at an aggregate cost of $147.5 million, and the payment of dividends of $13.5 million, partially offset by the net receipts of $281.0 million from our revolving lines of credit.
For 2022, the net cash used in financing activities was due to the payment of $238.2 million for the settlement of the Previous Term Loan, the repurchase of 10.7 million Class A common shares at an aggregate cost of $147.5 million, and the payment of dividends of $13.5 million, partially offset by the net receipts of $281.0 million from our revolving lines of credit.
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.
GROSS PROFIT The following table summarizes gross profit by segment: (dollars in thousands) 2023 2022 Change Amount % of Segment Net Sales Amount % of Segment Net Sales Amount % Basis Points Segment gross profit: U.S.
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 ABL Revolver and the Term Loan also contain customary covenants restricting certain activities, including limitations on our ability to sell assets, engage in acquisitions, enter into transactions involving related parties, incur additional debt, grant liens on assets, pay dividends or repurchase stock, and make certain other changes.
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.
Comparable Sales Performance Metric- The following table presents the percent change in comparable sales for each segment and in total: 2023 2022 Change in comparable sales: U.S.
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.
In connection with this settlement, during 2022 we incurred a $12.7 million loss on extinguishment of debt, composed of a $6.9 million prepayment premium and a $5.7 million write-off of unamortized debt issuance costs. Refer to Note 12, Debt , of the consolidated financial statements of this Form 10-K for further information about our debt arrangements.
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.
LOSS ON EXTINGUISHMENT OF DEBT AND WRITE-OFF OF DEBT ISSUANCE COSTS In connection with the settlement of our previous senior secured term loan agreement ("Previous Term Loan") on February 8, 2022, we incurred a $12.7 million loss on extinguishment of debt, composed of a $6.9 million prepayment premium and a $5.7 million write-off of unamortized debt issuance costs.
We include in our comparable sales metric sales from stores in operation for at least 14 months at the beginning of the applicable year. Stores are added to the comparable base at the beginning of the year and are dropped for comparative purposes in the quarter in which they are closed.
We include in our comparable sales metric sales from stores in operation for at least 14 months at the beginning of the applicable year. Stores are added to the comparable base at the beginning of the year and are dropped for comparative purposes in the quarter in which they are closed. Comparable sales include the e-commerce sales of the U.S.
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 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: February 3, 2024 January 28, 2023 U.S.
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.
We believe that cash generated from our operations, together with our current levels of cash, as well as the availability under our ABL Revolver and Term Loan, are sufficient to maintain our ongoing operations, support seasonal working capital requirements, fund acquisitions and capital expenditures, repurchase common shares under our share repurchase program, and meet our debt service obligations over the next 12 months and beyond.
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.
Retail segment (9.5) % 2.0 % Canada Retail segment (5.9) % 28.8 % Brand Portfolio segment - direct-to-consumer channel 6.0 % 34.5 % Total (9.0) % 4.4 % 22 Table of contents 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.
As a result of the replacement of the ABL Revolver during 2022, we also wrote off $0.2 million of debt issuance costs. INCOME TAXES The effective tax rate was negative 2.0% for 2022, as compared to a positive 10.7% for 2021.
As a result of the replacement of the ABL Revolver during 2022, we also wrote off $0.2 million of debt issuance costs. INCOME TAXES The effective tax rate was a positive 27.3% for 2023, as compared to a negative 2.0% for 2022.
Debt Covenants- As of January 28, 2023, the ABL Revolver required us to maintain a fixed charge coverage ratio covenant of not less than 1:1 when availability is less than the greater of $41.3 million or 10.0% of the maximum borrowing amount.
Debt Covenants- The ABL Revolver requires us to maintain a fixed charge coverage ratio covenant of not less than 1:1 when availability is less than the greater of $47.3 million or 10.0% of the maximum borrowing amount.
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.
EFFECTS OF INFLATION AND GLOBAL ECONOMIC CONDITIONS Throughout 2023, a downturn in global economic conditions, most notably the growing concerns of a potential recession, rising interest rates, inflationary pressures, changes in employment levels, and significant foreign currency volatility, has adversely impacted discretionary consumer income levels and spending for our customers.
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.
Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended January 28, 2023, filed with the SEC on March 16, 2023. 21 Table of contents EXECUTIVE OVERVIEW AND TRENDS IN OUR BUSINESS For 2023, net sales decreased 7.3% and total comparable sales decreased 9.0% over last year.
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.
There are specific exceptions to these covenants including, in some cases, upon satisfying specified payment conditions based on availability. As of February 3, 2024, we were in compliance with all financial covenants contained in the ABL Revolver and the Term Loan.
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.
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 February 3, 2024, our deferred tax assets were reserved with a valuation allowance of $12.1 million. We also had gross unrecognized tax benefits of $16.4 million.
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.
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.
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.
At the beginning of 2023, we completed the acquisition of Keds, expanding our Owned Brands' reach into casual and athleisure footwear in the wholesale and direct-to-consumer e-commerce channels and complementing the additions of Le Tigre and Topo during 2022.
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.
INVESTING CASH FLOWS For 2023, net cash used in investing activities was primarily due to the acquisition of Keds for $127.3 million and capital expenditures of $55.0 million relating to infrastructure and IT projects, new stores, and store improvements.
The rate for 2022 was the result of releasing $55.7 million of the valuation allowance partially offset by the permanent tax adjustments, primarily non-deductible compensation.
The effective tax rate for 2023 differed from the statutory rate primarily due to non-deductible compensation offset by other permanent adjustments. The effective tax rate for 2022 differed from the statutory rate as a result of releasing $55.7 million of the valuation allowance partially offset by the permanent tax adjustments, primarily non-deductible compensation.
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.
As it relates to our business, during the second half of 2022 and continuing into 2023, our net sales declined as we experienced lower traffic and became more promotional under a more competitive landscape. Competitive pricing pressure has been exacerbated by a more promotional retail environment as macroeconomic conditions continue to impact discretionary consumer spending.
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.
During 2023, net sales from our Owned Brands decreased 6.2% over last year, with Owned Brands representing 25.8% of consolidated net sales as compared to 25.5% for last year.
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.
We determined that the fair value of the indefinite-lived tradename within the Canada Retail segment was in excess of the carrying value and a 10% decrease in fair value would not result in an impairment charge.
Retail 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.
Retail segment - DSW stores 499 501 Canada Retail segment: The Shoe Company stores 118 113 DSW stores 25 25 143 138 Total number of stores 642 639 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) 2023 2022 Change Amount % of Net Sales Amount % of Net Sales Amount % Net sales $ 3,074,976 100.0 % $ 3,315,428 100.0 % $ (240,452) (7.3) % Cost of sales (2,100,090) (68.3) (2,236,203) (67.4) 136,113 (6.1) % Gross profit 974,886 31.7 1,079,225 32.6 (104,339) (9.7) % Operating expenses (907,041) (29.4) (896,382) (27.1) (10,659) 1.2 % Income from equity investments 9,390 0.3 8,864 0.3 526 5.9 % Impairment charges (4,834) (0.2) (4,317) (0.1) (517) 12.0 % Operating profit 72,401 2.4 187,390 5.7 (114,989) (61.4) % Interest expense, net (32,171) (1.0) (14,874) (0.5) (17,297) 116.3 % Loss on extinguishment of debt and write-off of debt issuance costs — — (12,862) (0.4) 12,862 NM Non-operating expenses, net (33) — (130) — 97 (74.6) % Income before income taxes 40,197 1.4 159,524 4.8 (119,327) (74.8) % Income tax benefit (provision) (10,981) (0.4) 3,142 0.1 (14,123) NM Net income 29,216 1.0 162,666 4.9 (133,450) (82.0) % Net loss (income) attributable to redeemable noncontrolling interest (154) — 10 — (164) NM Net income attributable to Designer Brands Inc. $ 29,062 1.0 % $ 162,676 4.9 % $ (133,614) (82.1) % Earnings per share attributable to Designer Brands Inc.: Basic earnings per share $ 0.47 $ 2.41 $ (1.94) (80.5) % Diluted earnings per share $ 0.46 $ 2.26 $ (1.80) (79.6) % Weighted average shares used in per share calculations: Basic shares 61,296 67,603 (6,307) (9.3) % Diluted shares 63,375 72,101 (8,726) (12.1) % NM - Not meaningful NET SALES The following table summarizes net sales by segment: (dollars in thousands) 2023 2022 Change Amount % of Segment Net Sales Amount % of Segment Net Sales Amount % Comparable Sales % Segment net sales: U.S.
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.
The ABL Revolver, which matures in 2027, may be used to provide funds for working capital, capital expenditures, share repurchases, other expenditures, and permitted acquisitions as defined by the credit facility agreement.
The FILO Term Loan may be repaid in full, but not in part, so long as certain payment conditions are satisfied. Once repaid, no portion of the FILO Term Loan may be reborrowed. The maturity date of the ABL Revolver did not change and is applicable to the FILO Term Loan.
In addition, the ABL Revolver includes a FILO Term Loan of up to $30.0 million, which was drawn in full on February 28, 2023. The FILO Term Loan may be repaid in full, but not in part, so long as certain payment conditions are satisfied. Once repaid, no portion of the FILO Term Loan may be reborrowed.
Comparable sales for the Canada Retail segment exclude the impact of foreign currency translation and are calculated by translating current period results at the foreign currency exchange rate used in the comparable period of the prior year. Comparable sales for the Brand Portfolio segment include the direct-to-consumer e-commerce site www.vincecamuto.com.
Retail and Canada Retail segments. Comparable sales exclude the 53 rd week of sales in 2023 and, specifically for the Canada Retail segment, the impact of foreign currency translation, which is calculated by translating current period results at the foreign currency exchange rate used in the comparable period of the prior year.
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.
Operating expenses, as a percentage of net sales, increased 240 basis points over the same period last year due to the lower net sales as we deleveraged our increased costs. IMPAIRMENT CHARGES During 2023, we recorded impairment charges of $4.8 million, primarily in the Brand Portfolio segment resulting from an abandoned leased space.
DEBT ABL Revolver- On March 30, 2022, we replaced our previous senior secured asset-based revolving credit facility with our current ABL Revolver, which provides a revolving line of credit of up to $550.0 million, including a Canadian sub-limit of up to $55.0 million, a $75.0 million sub-limit for the issuance of letters of credit, a $55.0 million sub-limit for swing-loan advances for U.S. borrowings, and a $5.5 million sub-limit for swing-loan advances for Canadian borrowings.
The amended ABL Revolver provides a revolving line of credit of up to $600.0 million, including a Canadian sub-limit of up to $60.0 million, a $75.0 million sub-limit for the issuance of letters of credit, a $60.0 million sub-limit for swing-loan advances for U.S. borrowings, and a $6.0 million sub-limit for swing-loan advances for Canadian borrowings.
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.
As we periodically reassess estimated future cash flows and asset fair values, changes in our estimates and assumptions may cause us to realize material impairment charges in the future. 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.
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.
The following table presents the key categories of our consolidated statements of cash flows: (in thousands) 2023 2022 Change Net cash provided by operating activities $ 162,399 $ 201,426 $ (39,027) Net cash used in investing activities (182,493) (88,117) (94,376) Net cash provided by (used in) financing activities 10,479 (128,479) 138,958 Effect of exchange rate changes on cash balances 22 (523) 545 Net decrease in cash, cash equivalents, and restricted cash $ (9,593) $ (15,693) $ 6,100 OPERATING CASH FLOWS The decrease in net cash provided by operations was largely driven by the receipt of $120.3 million of our income tax receivable from the Internal Revenue Service during 2022 and the decrease in net income recognized in 2023 over last year, after adjusting for non-cash activity including depreciation and amortization and the loss on extinguishment of debt and write-off of debt issuance costs.
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 net recognition of intersegment gross profit consisted of the following: (in thousands) 2023 2022 Intersegment recognition and elimination activity: Net sales recognized by Brand Portfolio segment $ (72,078) $ (87,041) Cost of sales: Cost of sales recognized by Brand Portfolio segment 51,213 58,234 Recognition of intersegment gross profit for inventory previously purchased that was subsequently sold to external customers during the current period 24,146 32,322 $ 3,281 $ 3,515 25 Table of contents OPERATING EXPENSES Operating expenses increased by $10.7 million during 2023 over last year, primarily driven by an increase in marketing expenses as we invested more in brand awareness, the additional operating expenses from the acquired Topo and Keds businesses, and the additional week during 2023, partially offset by a decrease in incentive compensation in line with lower net sales.
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.
INTEREST EXPENSE, NET For 2023, interest expense, net, increased by $17.3 million over last year, primarily driven by overall higher interest rates on our debt, with higher rates on the ABL Revolver over last year and the addition of the Term Loan, and a higher average debt balance during 2023.
INVESTING CASH FLOWS For 2022, net cash used in investing activities was primarily due to capital expenditures of $55.0 million relating to infrastructure and IT projects, new stores, store improvements, the acquisition of Topo for $19.1 million, and our investment in Le Tigre for $8.2 million.
For 2022, the net cash used in investing activities was primarily due to capital expenditures of $55.0 million relating to infrastructure and IT projects, new stores, store improvements, the acquisition of Topo for $19.1 million, and our investment in Le Tigre for $8.2 million. 27 Table of contents FINANCING CASH FLOWS For 2023, the net cash provided by financing activities was due to proceeds from the issuance of the Term Loan of $135.0 million and the net receipts of $20.0 million from our ABL Revolver, partially offset by the repurchase of 9.7 million Class A common shares at an aggregate cost of $102.2 million, including transaction costs and excise tax, payments of $17.5 million for taxes for stock-based compensation shares withheld, payments of dividends of $12.2 million, and payments of debt issuance costs of $10.7 million.
ABL Revolver Amendment- On February 28, 2023, the ABL Revolver was amended to increase the available capacity under the revolving line of credit from $550.0 million to $600.0 million and to add a first-in last-out term loan (the "FILO Term Loan") of up to $30.0 million, which was drawn in full on the date of the amendment, subject to a borrowing base.
During 2023, the following significant transactions impacted our liquidity: • On February 4, 2023, we completed the acquisition of Keds for $127.3 million in cash consideration, funded with available cash and borrowings on the ABL Revolver. • On February 28, 2023, the ABL Revolver was amended to increase the available capacity under the revolving line of credit from $550.0 million to $600.0 million and to add a first-in last-out term loan ("FILO Term Loan") of up to $30.0 million, which was drawn in full, subject to a borrowing base. • On June 23, 2023, we entered into a Term Loan and borrowed $135.0 million during 2023. • We repurchased an aggregate of 9.7 million Class A common shares, including open market purchases and purchases under a modified "Dutch Auction" tender offer, at an aggregate cost of $102.2 million, including transaction costs and excise tax.
As of 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.
As of February 3, 2024, the revolving line of credit (excluding the FILO Term Loan) had a borrowing base of $437.0 million, with $271.1 million in outstanding borrowings a nd $5.0 million in letters of credit issued, resulting in $160.9 million av ailable for borrowings.
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.
Retail $ 794,266 31.3 % $ 904,583 32.4 % $ (110,317) (12.2) % (110) Canada Retail 84,794 32.1 % 99,121 35.0 % (14,327) (14.5) % (290) Brand Portfolio 92,545 26.5 % 72,006 22.0 % 20,539 28.5 % 450 Total segment gross profit 971,605 30.9 % 1,075,710 31.6 % (104,105) (9.7) % (70) Net recognition of intersegment gross profit 3,281 3,515 (234) Consolidated gross profit $ 974,886 31.7 % $ 1,079,225 32.6 % $ (104,339) (9.7) % (90) The decrease in consolidated gross profit was primaril y driven by the decrease in consolidated net sales over the same period last year, partially offset by lower freight and shipping costs and lower distribution costs in the U.S.
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.
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, capital expenditures, and debt service. Our working capital and inventory levels fluctuate seasonally.
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.
Retail $ 2,533,849 80.5 % $ 2,791,513 82.0 % $ (257,664) (9.2) % (9.5)% Canada Retail 264,229 8.4 % 283,241 8.3 % (19,012) (6.7) % (5.9)% Brand Portfolio 348,976 11.1 % 327,715 9.7 % 21,261 6.5 % 6.0% Total segment net sales 3,147,054 100.0 % 3,402,469 100.0 % (255,415) (7.5) % (9.0)% Elimination of intersegment net sales (72,078) (87,041) 14,963 (17.2) % Consolidated net sales $ 3,074,976 $ 3,315,428 $ (240,452) (7.3) % 24 Table of contents During 2023, net sales decreased in the U.S.
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.
During 2022, we recorded impairment charges of $4.3 million, primarily in the Brand Portfolio segment, resulting from subleases of abandoned leased spaces.
Removed
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.
Added
We believe these acquisitions represent significant steps taken toward our long-term goal of net sales from our Owned Brands reaching one-third of total sales by 2026.
Removed
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.
Added
Gross profit as a percentage of net sales for 2023 was 90 basis points lower when compared to last year, primarily due to promotional pricing and the deleveraging effect of lower sales on fixed store occupancy costs, which more than offset lower logistics costs, including freight, shipping, and distribution.
Removed
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.
Added
Comparable sales include the e-commerce sales of the Brand Portfolio segment from the direct-to-consumer e-commerce site for the Vince Camuto brand.
Removed
This acquisition also marks our first Owned Brand wholesale business within the kids' footwear segment and supports our Owned Brand strategy.
Added
The e-commerce sales for Topo, Keds, and Hush Puppies will be added to the comparable base for the Brand Portfolio segment beginning with the first quarter of 2024, the second quarter of 2024, and the third quarter of 2024, respectively.
Removed
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.
Added
Retail segment, primarily due to the decrease in comparable sales of $260.3 million, with the additional week of sales during 2023 offset by the impact of net store closures since the end of 2022. The decrease in comparable sales for the U.S.
Removed
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.
Added
Retail segment was largely driven by a decrease in comparable transactions of approximately 5%, driven by lower traffic, and a decrease in the comparable average sales amounts per transaction of approximately 5% as we were more promotional than we were during the same period last year.
Removed
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.
Added
Net sales decreased in the Canada Retail segment due to the decrease in comparable sales of $16.6 million, with the majority of the remaining decrease due to the unfavorable impact from foreign currency translation partially offset by the additional week of sales in 2023.
Removed
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.
Added
The decrease in comparable sales for the Canada Retail segment was impacted primarily by lower comparable average sales amount per transaction. Net sales for the Brand Portfolio segment increased due to the net sales added from the acquired Topo and Keds businesses partially offset by lower wholesale sales as retailer customers pulled back on orders.
Removed
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.
Added
Retail segment as we realized the benefit of moving our digital fulfillment activities from our Ohio location to our New Jersey location. Gross profit as a percentage of net sales decreased 110 basis points for the U.S.
Removed
Comparable sales include stores temporarily closed as a result of the COVID-19 pandemic as management believes that this metric is meaningful to monitor our performance. Comparable sales also include e-commerce sales.
Added
Retail segment when compared to the same period last year, primarily due to the deleveraging effect of lower sales on fixed occupancy costs as well as being more promotional, partially offset by lower logistics costs including freight, shipping, and distribution.
Removed
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.
Added
Gross profit as a percentage of net sales decreased 290 basis points for the Canada Retail segment when compared to the same period last year, primarily due to a mix shift in sales towards lower margin products and the deleveraging effect of lower sales on fixed occupancy costs.
Removed
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.
Added
Gross profit as a percentage of net sales increased 450 basis points for the Brand Portfolio segment when compared to the same period last year, primarily due to the change in mix of products sold, improved inventory positions, lower freight costs, and the leverage of higher sales on royalty expense since the acquired businesses do not have any royalty obligations.
Removed
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.
Added
As of February 3, 2024, $87.7 million of Class A common shares remained available for repurchase under the share repurchase program. 26 Table of contents The following table summarizes our material undiscounted cash requirements for 2024 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 2024 Future Fiscal Years Thereafter Total Debt maturities Note 12 $ 6,750 $ 427,445 $ 434,195 Fixed minimum lease payments Note 13 $ 191,281 $ 762,073 $ 953,354 Noncancelable purchase obligations Note 14 $ 18,852 $ 11,137 $ 29,989 Guaranteed minimum royalty payments Note 14 $ 36,097 $ 143,649 $ 179,746 In addition to the above, we have an exclusive call option and the noncontrolling interest holders have a put option with respect to our purchase of the remaining 20.6% ownership interest in Topo upon the occurrence of certain events or after a period of three years following the close of the transaction, which was December 13, 2022.
Removed
Our working capital and inventory levels fluctuate seasonally. During 2022, we repurchased 10.7 million Class A common shares at an aggregate cost of $147.5 million. As of January 28, 2023, $187.4 million of Class A common shares remained available for repurchase under the share repurchase program. During 2021 , we did not repurchase any Class A common shares.
Added
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.
Removed
In the fourth quarter of 2022, we received $120.3 million of our income tax receivable from the Internal Revenue Service as a result of the Coronavirus Aid, Relief, and Economic Security Act. We expect to receive the remaining income tax receivable of $44.0 million within the next 12 months.
Added
These were partially offset by lower spend on working capital due to the decreased investment in inventory with the slowdown in net sales, as discussed above in the results of operations, and the timing of payments on current liabilities.
Removed
On December 13, 2022, we acquired a 79.4% ownership interest in Topo for $19.1 million in cash. We have an exclusive call option to purchase the remaining 20.6% ownership interest in Topo upon the occurrence of certain events or after a period of two years following the close of the transaction.
Added
DEBT ABL Revolver- On March 30, 2022, we replaced our previous senior secured asset-based revolving credit facility with our current ABL Revolver, which was subsequently amended on February 28, 2023 and June 23, 2023.
Removed
The noncontrolling interest holders also have a put option with respect to the remaining 20.6% ownership interest in Topo upon the occurrence of certain events or after a period of three years following the close of the transaction.

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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 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
Biggest changeA hypothetical 10% movement in the exchange rate would result in an immaterial impact of foreign currency revaluation recorded to non-operating expenses, net, within the consolidated statements of operations. 31 Table of contents
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.
Borrowings and letters of credit issued under the ABL Revolver and Term Loan accrue interest based on variable rates of interest, which expose us to interest rate market risks, particularly during a period of rising interest rates.
FOREIGN CURRENCY EXCHANGE RISK We are exposed to the impact of foreign exchange rate risk primarily through our operations in Canada, where the functional currency is the Canadian dollar, as well as foreign-denominated cash accounts.
FOREIGN CURRENCY EXCHANGE RISK We are exposed to the impact of foreign exchange rate risk primarily through U.S. dollar denominated debt held by our Canadian legal entity where the functional currency is the Canadian dollar.
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.
The impact of a hypothetical 100 basis point increase in interest rates on our outstanding borrowings would result in approximately $4.0 million of additional expense over a 12-month period based on the balance as of February 3, 2024.
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.
We currently do not utilize hedging instruments to mitigate these market risks. INTEREST RATE RISK As of February 3, 2024 , we had $301.1 million and $133.1 million outstanding on our ABL Revolver and Term Loan, respectively.

Other DBI 10-K year-over-year comparisons