Designer Brands Inc.

Good morning and welcome to the Designer Brands Third Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I'd now like to turn the conference over to Ashley Furland with Edelman Smithfield. Please go ahead. Good morning.

Earlier today, the company issued a press release comparing results of operations for the 13-week period ending October 28, 2023 to the 13-week period ended October 29, 2022. Please note that the financial results that we will reference during the remainder of today's call exclude certain adjustments recorded under GAAP unless specified otherwise. For complete reconciliation of GAAP to adjusted earnings, please reference our press release. Additionally, please note that remarks made about the future expectations, plans, and prospects of the company constitute forward-looking statements. Results may differ materially due to the 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 Doug Howe, Chief Executive Officer, Jared Poth, Chief Financial Officer, and Laura Dank, President of DSW. I'll now turn the call over to Doug.

Good morning, everyone. Thank you for joining us today. The third quarter was difficult for our business. Macro headwinds continued to impact us, most acutely within our retail segment traffic, as consumers remain under pressure and the overall footwear market contracted for the first time since the pandemic. Because our business is heavily weighted towards dress and seasonal, unseasonably warm weather also had an outsized impact on our top line. We also faced headwinds that we believe demonstrate our need to operate with even greater speed while increasing the level of innovation, newness, and fashion in our assortments. To this end, we have made several strategic decisions regarding leadership across our organization, and we will be diligent as we embark on the journey of backfilling these roles in order to best position our business for the future. During our second quarter earnings call, We communicated that our full year guidance assumed we sat at a key inflection point and a retail comp performance would need to meaningfully improve, supported by a strong septober throughout the balance of the year in order to meet our expectations. We also noted the possibility for headwinds to worsen further, something that could hamper the sequential improvement we required. During the third quarter, we experienced a sales shortfall within the fall season, specifically September, particularly related to broad-based weakness in seasonal and dress. Conversely, the casual portion of our retail business continued to perform well, delivering comp sales growth in the mid-single digits. We also see the retail customer continuing to lean into value. and the intentional rebuild of our clearance business within our U.S. retail segment helped to slightly offset broader declines. Clearance sales were down only 3%, significantly better than our total sales, which were down 9%. However, none of these were significant enough to offset the precipitous decreases we experienced in dress and, more notably, in boots. Within our retail segments, which include DSW stores, shoe company, and their related e-commerce sites, our top line fell short of our expectations driven by seasonal product demand, specifically boot demand, falling meaningfully year over year. This was a dynamic felt industry-wide. We have long been a market leader in seasonal footwear, which is boots and sandals, and this continued to represent a material portion of our sales in Q3. According to Cercana, third quarter seasonal footwear was down 16% based on dollar sales over the last year in the total market, which was in line with our performance at DSW. However, while seasonal footwear represents about 20% of the total market in the third quarter, it represented nearly 40% of DSW's business, resulting in disproportionate pressure on our performance. As we look across our entire assortment and continue to learn more about evolving consumer preferences in both category mix and shopping channels, we are adapting our own strategic approach. We know we can perform better across all categories, including non-seasonal, and get back to our roots of being a product-led, data-driven merchant organization, quick to supply product that meets the trends the customer is leaning into. To that end, I am excited by the skilled and experienced merchant leadership we have brought to the business, and Laura Dank, our newest president of DSW, will speak to strategic initiatives her team is pursuing shortly. We met our expectations in our brand portfolio segment, with overall sales down 12.5% in line with our expectations. Declines in our legacy brand's wholesale business were offset by the additions of Keds, Topo, and Hush Puppies, as well as strong performance at VC.com. We are building momentum and gaining traction across our brand portfolio as we continue to prioritize long-term, sustainable growth within this segment. At the beginning of our brand-building journey, The portfolio we controlled was highly focused on dress and seasonal with significant white space opportunities in the casual and athleisure space, which drove us to make key acquisitions. Since that time, we have made notable progress growing our portfolio and doubling sales of our own brands across DBI's business continues to be central to our growth story moving forward. At Topo specifically, we saw a sequential increase in the quarter and a significant improvement in our DTC site throughput. In October, we launched three new shoes, including a new waterproof trail runner and new low-top hiker. We also refreshed the ST5, which pairs a minimally cushioned zero-drop platform with Topo's signature fit for a natural, comfortable run experience and or workout session at the gym. I want to take a moment to thank our partners at REI, a key retail partner for us as we continue to expand our partnership and increase brand awareness for Topo. At Vince Camuto, the brand posted its highest demand day of 2023 in the quarter, as well as the largest full-price non-promotional day in VC.com history. Spurred by the incredibly successful first-ever influencer collaboration, with Dress Up Buttercup, a lifestyle brand by Dee Dee Rad, who has over one million followers on Instagram. To celebrate the launch, influencers attended a brunch in Nashville, Tennessee, helping to drive significant publicity. As we look to expand our specialty-sized business, which Laura will speak to in a moment, this recent launch has given us yet another proof point that wide-cap boots are in high demand. And given the limited options available that address this market, we will continue to provide new offerings to capture share. Another way we are strategically evolving our assortment and listening to our customers. Year over year, VC.com comp sales were up 7% for the quarter. Importantly, Vince Camuto remains in an excellent position to expand the total addressable market for our own brands. with significant opportunity in both men's and women's wide-width shoes. Before I hand it over to Laura, I want to thank our team for their dedicated execution in this very challenging environment. We are digging in. We will adapt. And I'm confident in our ability to navigate this backdrop and make progress on our long-term vision. Designer Brands is unlike any other company in the footwear industry, and I believe this unique model will allow us to grow our competitive edge. As we aim to ride our business for the future, we continue to prioritize building out our leadership team with the right skill set to ensure our product focus aligns within our customers' preferences. As a first step, Laura has hit the ground running and has begun laying the groundwork for key strategic updates. To elaborate on some of these priorities for DSW, please join me in welcoming DSW's president, Laura Denk. Laura?