Designer Brands Inc.

Good morning, everyone, and welcome to the Designer Brands Incorporated Report's fourth quarter and fiscal year 2021 results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Stacey Turnoff with Edelman. Ma'am, please go ahead.

Good morning. Earlier today, the company issued a press release comparing results of operations for the 13-week and 52-week periods ending January 29, 2022 to the 13-week and 52-week periods ending January 30, 2021. Please note that the remarks made about the future expectations, plans, and prospects of the company constitute forward-looking statements. Results may differ materially due to various factors listed in today's press release and the company's public filings with the SEC. The company assumes no obligation to update any forward-looking statements. Joining us today are Roger Rawlings, Chief Executive Officer, and Jared Poff, Chief Financial Officer. Now, let me turn the call over to Roger.

Good morning and thank you everyone for joining us today for Designer Brands' fourth quarter and full year 2021 earnings call. We are extremely pleased with the strong end to our fiscal year during which we set several records. Our team did an incredible job all year delivering results that exceeded our initial expectations while strengthening the long-term fundamentals of our business. As always, we want to thank our associates for their dedication to the business. Because of their hard work, DBI exited 2021 in a position of strength, despite the challenges in the operating environment. We returned the business to a growth trajectory, delivering our highest operating income since 2014. And this growth is expected to continue, as Jared will share with you a little later. As we continue to lean into the pivots we've made, during the pandemic and return to strategic growth in our owned brands and our direct to consumer or DTC business. As I take a moment to pause and reflect, the pandemic created unprecedented changes in consumer behavior from the types of products they buy to how they shop. Prior to the onset of COVID-19, we had begun to evolve our strategy, but the market conditions of the past two years forced us to grow and change at an accelerated pace. Because of the actions we took, we now believe that we are well positioned strategically and financially. We have grown our market share in categories where the consumer is demanding a broader selection, such as athletic, kids, and men's. We've retained our historic market leadership in dress and fashion as these categories make their post-COVID-19 recovery. We've coupled these with our award-winning digital and omni-channel capabilities, and we now see the ability to turn the engines of our in-house design and sourcing capabilities back on to be a builder of brands moving forward. We are already seeing aggressive growth in sales of our owned brands in our DTC channels of DSW, both in-store and online, Shoe Company and VinceCamuto.com, and believe that this is where our future growth lies. Our future growth will be supported by our core competencies and initiatives that make up the three pillars we've been talking about, customer, brand, and speed. Let's dive into how we capitalized on those in 2021, starting with our focus on customers. Increasingly throughout 2021, we've seen our customers coming back to us for dress and seasonal product. This is where our brand building expertise lies, where our historic retail dominance leads, and we believe that we have on-trend product and capabilities to meet this rebound in demand. According to NPD, While the rest of the market experienced a revenue decline in fashion footwear, DSW outpaced with a growth of 30 basis points in the quarter ending in January, compared to the same period in 2019. Even with this rebound, we haven't taken our foot off the gas in categories where we've been gaining market share in the last two years. In 2021, over 60% of all shoes sold across North America in the footwear industry were athleisure. The growth in athleisure specifically provided us opportunities to grow our men's and kids' categories within our U.S. retail business to new record levels this year. And we grew sales across our enterprise in athleisure by 30% compared to pre-pandemic levels. In fact, according to NPD Group Retail Tracking Service, for the quarter, DSW outpaced the remaining U.S. footwear market significantly in men's, women's, and kids, including both athleisure and fashion footwear. compared to the same quarter in 2019, resulting in a market share revenue gain of 40 basis points. DSW's fourth quarter market share was the highest compared to the last two years. And given we are still under-penetrated to the athleisure category, we believe this growth will continue well into the future. Also in our U.S. retail business and athletics specifically, we posted a comp of 14% in the fourth quarter of 2021 compared to 2020. Kids comped up 38% in the quarter compared to the same period in 2020, and total men's sales were up $40 million in the fourth quarter versus the same period in 2020, primarily due to increases in men's dress, boots, and athletic. Not only have we followed our customers' style choices, we have also shifted our marketing investments to meet our customers where they are shopping. As a result, we significantly reduced our spend in costly and less productive direct mail and frequent use of gift with purchase and replaced those with more productive investments in digital media, focusing on brand building and customer acquisition. In 2021, we reduced our total cost of marketing and promotions in our U.S. retail business to 13.2% of sales, from 25.4% of sales in 2020 to and 16.1% of sales in 2019, a roughly $91 million improvement year over year, which was partially redeployed into investments to support growth. This strategy has yielded great success and an increased number of sales, delivering an all-time annual record in new member sign-ups to our loyalty program and fueling further growth in our bottom line. Turning to brands. We continue to lean into the best names and best styles, starting with our own brands, which include our exclusive brands and Komodo national owned and licensed brands to drive growth across our business. Our Komodo design and sourcing organization fueled the growth of our DTC sales, as well as a selective growth in our third-party wholesale business. Our long-term strategy is centered around growing our strength as a builder and grower of brands from our four major national brands to our top-quality Komodo-produced brands. Total DBI sales of our owned brands grew 69% in the fourth quarter of 2021 compared to 2020, and sales of our owned brands through our DTC channels, meaning DSW, Shuko, and VinceKomodo.com, grew by 98% in the fourth quarter of 2021 compared to 2020. The gross profit DBI earns on the DTC sales of our owned brands was a major growth driver in the quarter and will continue to aggressively propel our growth into the future. Additionally, in 2021, the gross profit rate before royalties that we earned selectively wholesaling our national brands was the highest we've generated since our acquisition of Komodo. We are pleased with how our Komodo acquisition has been woven into the fabric of designer brands and expect it to lead us through our next phase of growth. In addition to our own brands, we also continue to prioritize our top 50 brand partners in our US retail business. Our track record of success with brand partners continues to allow us to secure a strong assortment, even in constrained inventory environments. For the full year, the top 50 brands, which include some of our owned brands, represented 77% of our sales in 2021, compared to 72% in 2020. Our focus on these top 50 brand partners also enabled us to achieve record gross margin rates at both DSW and Canada in the fourth quarter. At DSW, our top 10 brands within our top 50 brands sold over $1 billion in sales for the full year 2021, contributing 40% of our total footwear sales. Last, our third pillar, speed. As I just mentioned, our team is continuing to find ways to secure strong levels of inventory despite industry-wide supply chain issues, and our inventory coming out of 2021 is flat on a square foot basis to 2019, a strong and competitive differentiator compared to our peers. In the fourth quarter of 2021, while we certainly saw the impact of supply chain pressures, we were able to pivot and lean on our own production and our strong relationships with vendor partners. We will continue to pursue a strategy of going narrower and deeper in our inventory investments as the supply chain pressures ease and look forward to the even stronger anticipated benefits this will bring in gross margin, speed to customer, and assortment differentiation. Another component of our ability to deliver product faster to our customer is our industry-leading omnichannel capabilities. This is what got us through the darkest times of COVID and continued to be a game changer for us throughout 2021. As customer shopping behavior changed and evolved, DBI leveraged its customer-facing touchpoints to meet our customers where they were shopping. In 2021, our DSW customer-facing digital platform well eclipsed $1 billion of demand for the first time. Digital demand at U.S. retail was up 11% for the fourth quarter of 2021 compared to 2020. Additionally, for the year, VIP new member acquisition at DSW was up 48% compared to 2020, and 2021 saw the highest amount of enrollments in the program's history. Not only are we gaining new members, we're also retaining customers at a significantly higher rate than last year, with retention rates improving 13 basis points in 2021 compared to 2020. You'll remember that last year we moved our Komodo and Canadian brands onto the same omnichannel platform that has been widely recognized as a leading platform for publicly traded footwear retailers in the U.S. This has further enhanced our ability to own customer relationships and analyze data, which we are utilizing to gain a deeper understanding of consumer preferences. Our DTC sales through VinceKomodo.com were $27.9 million for 2021, compared to 21.3 million in 2020 and only 15.5 million in 2019. And in Canada, we are now the fourth largest digital player in the footwear space, with significant headroom to grow from here. Finally, we continue to focus on driving higher profitability and productivity across our warehouse fleet in the U.S. retail business. These stores fulfill nearly 60% of our total digital demand across our retail segments during the year. Turning to Canada, total comps were up 42.3% in the fourth quarter versus down 27.6% in the year prior, and this continued our trend of quarter-over-quarter improvement. As a result of the Omicron spike, COVID restrictions were reintroduced partway through the fourth quarter. This impacted store traffic, which was down 23.7% in the fourth quarter compared to the fourth quarter of 2019, slightly worse than what we saw in the third quarter. We saw improvement in our women's business in the fourth quarter versus the last quarter, and as we shared in Q3, our boot business came back as weather turned. Digital demand had another strong quarter, up over 100% to 2019, and representing 32% of total Canadian sales, again, almost twice that of 2019. Before I turn it over to Jared, I'd like to briefly touch on our results. Our performance in the fourth quarter was consistent with our strengthening momentum throughout the year and allowed us to deliver growth over the fourth quarters of 2019 and 2020 across both our retail segments. For the quarter, total DBI comps were up almost 37% compared to the fourth quarter of 2020. Gross margin was roughly 31% in Q4, up 870 basis points compared to the same period in 2020 as we leaned into our owned brands and saw strong sell-through of our full-price products. As we've transitioned into Q1, we've continued to see a recovery in our store business, with the momentum of our consumers returning to stores, and we remain focused on maintaining our dominance in fashion and seasonal, while retaining the wins in market share we've gained in athletic and athleisure in recent history. Jared will share more about our financial results and our 2022 guidance in a moment. and I am excited that we expect to see growth continue across our entire business. To conclude, we are enthusiastic about our ability to continue capitalizing on the strategic shifts we've made over the past several years. We are looking forward to sharing more details on the future of our strategic initiatives at our Investor Day, which will be hosted in New York and virtually on April 8th. It's important to note that we will continue to focus on three things. Number one, engaging customers with our brands. We will remain laser-focused on understanding their preferences and delivering products and experiences across a wide range of channels that allow them to express themselves. Number two, providing the best brands. Our ability to be a brand builder as well as to offer such a wide variety of assortment will continue to differentiate us from other retailers. And three, delivering differentiated experience and products at speed. We are operationally aligned and continue to streamline our processes and our investments. With that, I will turn it over to Jared. Jared?