Designer Brands Inc.

Good morning and welcome to the Designer Brands third quarter 2024 results conference call. All participants will be in a listen-only mode. Should you need assistance, please send to a conference specialist by pressing the star key followed by a zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on a telephone keypad. 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 floor over to Dustin Hounstein, Senior Vice President of Finance. Please go ahead.

Good morning. Earlier today, the company issued a press release comparing results of operations for the 13-week period ended November 2nd, 2024 to the 13-week period ended October 28th, 2023. Please note that the financial results that we will be referencing during the remainder of today's call exclude certain adjustments recorded under GAAP unless specified otherwise. For a complete reconciliation of GAAP to adjusted earnings, please reference our press release. Additionally, please note that remarks made about 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, and Jared Poff, Chief Financial Officer. Now let me turn the call over to Doug.

Thank you, everyone, for joining us this morning. We were pleased with our strong start to the third quarter, anchored on the success of back-to-school season which was fueled by our athletic and athleisure offerings and led to positive comps in August. This gave us confidence that we had reached the inflection point in our business that we had been working towards. However, we saw a tough transition into the fall seasonal business as a result of unseasonably warm weather. This was exacerbated by an ongoing pullback in consumer discretionary spending due to sustained uncertainty in the macro environment. While we saw demand below expectations across most of our categories, our boot business, while already planned down approximately 15%, was down 27%. However, according to Sakana, for Q3, footwear sales excluding boots remained flat prior year in the footwear market, while DSW footwear sales excluding boots grew 8% versus prior year, outpacing the footwear market results. This was largely due to our athletic category continuing to comp positive throughout the quarter. Additionally, in U.S. retail, we saw growth across key categories in the quarter, like women's dress, luxury, athletics, and kids. And our top eight brands, seven of which were athleisure, continued to lead the way. As we navigate through the remainder of the year, we are mindful that pressures are likely to continue. As such, we will continue to focus on those initiatives within our control and lean into areas where we are winning and the customer is shopping. I will get into this strategy in a moment, but I want to extend a sincere thank you to our employees for their diligence and commitment in applying our refresh strategy. Let me first touch on our consolidated results. In the third quarter, our sales were down 1.2% compared to last year, and our comps were down 3.1% at a consolidated level. This was primarily driven by a negative 2.8% comp in our U.S. retail segment, driven by the dynamics I discussed earlier. Despite these external pressures, we continue to see our strategic priorities yielding strong results. According to Cercana, for Q3, DSW footwear sales were in line with the footwear market versus last year, outpacing the market in performance and leisure footwear, as well as in draft occasion footwear. This helped to offset negative boot performance at DSW. Importantly, our adjusted operating income improved roughly 40% compared to last year, taking us to $43.6 million. Our profitability also improved sequentially as a result of ongoing expense optimization and the reversal of incentive compensation recognized in previous quarters, following softer than expected performance. Turning to our retail business, U.S. retail sales were down 2.6% compared to last year. Comp sales were down 2.8% in the quarter, driven by continued growth in athletic and athleisure, which was more than offset by weaknesses in seasonal. We aren't the only ones who felt this weakness. According to Sakana, both DSW and the footwear market were down double digits in boot sales for Q3. As we continue to evolve our assortment, seasonal still remains an area where we are significantly penetrated, therefore overly affecting our consolidated results. We noted to you last quarter that we had taken unprecedented material actions to reduce our seasonal assortment into the fall. As a result of the continued weakness we've seen, we have proactively pulled back even further on fourth quarter receipts in seasonal as part of our efforts to ensure we are moving forward with a healthy inventory position by the end of the year. Our target for the end of Q4 is to have inventory flat to up low single digits compared to last year. It is clear more decisive actions are needed to decrease seasonal penetration on an ongoing basis, and as such, we are planning accordingly for 2025. We are committed to more aggressively leveraging consumer insights to lean into our greatest areas of differentiation. This includes prioritizing investments and focusing on areas where we know we differentiate ourselves, including our stores. As we continue to focus on executing on those things within our control, I'm going to briefly walk through our efforts against DSW's three strategic pillars in the third quarter. Reinvigorating our assortment, elevating our marketing, and enhancing our omnichannel shopping experience. Starting with our assortment, our top eight brands continue to be a primary driver of positive performance, with sales up 27% compared to the third quarter last year. As anticipated, we saw continued strength in athletics with both adults and kids growing double digits. Our athletic penetration increased by nearly five points versus the prior year, and we see remaining white space in this category. Athletic socks also continue to perform well, up triple digits. Excitingly, we also saw a positive mid-single-digit comp in women's dress. As we head into the holiday season, we have also made investments in highly giftable brands. including several that will be merchandised in our Cozy Shop at the front of our stores. As I'll detail shortly, we are leaning into holiday like never before at DSW, partnering with key national brand partners to be loud, exciting, and most importantly, in stock on the most desirable brands for this time of year. Moving to marketing, our ability to amplify our involved assortment is more critical than ever, and our new Chief Marketing Officer has hit the ground running. We've had a number of successes in the third quarter, including starting off strong with back-to-school season, deploying celebrity and influencers to share their picks for the season, and a curated online back-to-school shopping guide to cater to the needs of students, parents, and teachers of all ages. The approach drove 26.1 billion media impressions compared to 15 billion last year at the same time. kicking off the fall with an omni-channel campaign titled Fall Trends that guided customers towards the trendiest styles, from over-the-knee boots to the color red to fierce animal prints and heavy metal details. The results of these efforts included 67 billion earned media impressions, the equivalent of $4 billion in advertising value, from top-tier outlets including The Today Show, U.S. Weekly, and PureWow. Improving and enhancing our social media channels and engagement, September was a top-performing month, and we are seeing overall channel engagement of 500%, monthly engagement of 4%, and a new follower rate of nearly 7%. Paired with our enhanced influencer and content strategies, this resulted in an average of 15 million views across our social content monthly, helping our DSW brand to rise in the ranks of strategic target audiences, specifically men's and kids' footwear consumers, and has improved our brand awareness ranking with these key audiences. While we believe we are early on in our journey and have more room to improve, these early signs are encouraging. And finally, bringing on a world-class brand agency, Crispin, as our new brand strategy partner, initiating robust work aimed at elevating the re-energizing DSW brand and improving overall awareness. To that end, our efforts around our third pillar to enhance our omnichannel shopping experience for DBI customers remain a core strategic priority. We know that roughly 70% of our customers start their search online and still go to the stores. Our stores also remain our largest source of net new customer acquisition. To fully take advantage of our omnichannel platform in the quarter, DSW leaned into being a back-to-school destination, both online and, in particular, in stores where we established a large and impactful visual presence with impressive and attention-grabbing collateral. So with these new learnings, let's talk about what we're doing in the U.S. to mitigate headwinds as we move through the fourth quarter. Our team has identified that we had a significant opportunity to execute a gifting strategy this holiday. This is largely driven out of our accessories area and encompasses socks, tights, hats, and cold-weather wearers. It will include a completely reimagined queue line and several updates to our gifting and impulse product offerings that can only be found in stores. This will be accompanied by creative collateral to support a gift guide, key trends, prioritized brands, and other relevant holiday messaging. We have an action-packed consumer engagement plan that will showcase great value, top trends, and the season's best giftables. And we are amplifying this with a 360-degree holiday campaign that evolves with the customer's needs throughout the extended period. While sales have been relatively in line with projections, we've seen an uptick in margins as we've become less promotional compared to last year. Turning to our Canadian business, in Canada, boots are even more impactful to our fall business, especially technical and cold weather boots. Extremely unseasonable warm weather led to a break in the usual third quarter trends with boots down double digits and sandal sales up nearly 40%. Given the typical boot buying trends in the Canadian market are so unique and historically have not been impacted by weather, we did not plan inventory down in this geography for the quarter as we did in the U.S. Therefore, we felt an outsized impact. Similar to the U.S., athletic and casual continued to post positive performance. Despite the break in the usual seasonality, the third quarter marked nine straight months of market share gains in Canada, driven by strength in kids. This quarter, we opened two new shoe company stores in Canada, bringing us to a net eight new store year-to-date on top of the 28 Rubino stores. Now to our brand portfolio segment. As referenced on prior earnings calls, our efforts to reduce costs right-size the organization, expand margins, streamline and simplify the way we work remain the top priorities in 2024. To this end, we continue to evaluate our sampling and design process to improve SKU productivity and drive margin improvement. Historically, our adoption rate of design proposals was roughly 20%, and we are energized by significant improvement we've seen with a 50% adoption rate for our spring 25 collection. a number we plan to take even higher over the long term. Successes in these areas led to a meaningful improvement in earnings contribution from the segment. As we look forward, we are positioned for continued growth as we build upon this foundation. We continue to be excited about the growth we are seeing in our Topo Athletic and Jessica Simpson brand specifically. Topo Athletic, up 66% in net sales for the quarter, continues to build momentum as we expand our distribution and raise product awareness, supported by our increase in marketing investments. Furthermore, there is a lot of buzz around the running category, and Topo is front and center, driving the excitement and offering customers more comfort. Jessica Simpson did well as we saw strength in our special occasion wear, with sales up 14%. As I conclude, I am pleased with the way our business has continued to execute successfully on our strategic priorities. We remain focused on continuing to create the right discipline and performance within our retail and brand businesses and are excited about our long-term path to profitable growth. I am confident the steps we are taking will set us up for improved performance over the long term as these headwinds abate. With that, I'll turn it over to Jared.