Good morning and welcome to the Designer Brands Third Quarter 2024 Results Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please also note, today's event is being recorded. At this time, I'd like to turn the floor over to Dustin Hauenstein, 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 2, 2024, to the 13-week period ended October 28, 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 the 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 have 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 Circana, for Q3, footwear sales, excluding boots remained flat to the prior year in the footwear market, while DSW footwear sales, excluding boots, grew 8% versus the 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 8 brands, seven of which were athleisure, continue 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 the strategy in a moment but I want to extend a sincere thank you to our employees for their diligence and commitment in applying our refreshed 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 Circana, 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 dress 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 Circana, 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 3 strategic pillars in the third quarter: reinvigorating our assortment, elevating our marketing and enhancing our omnichannel shopping experience. Starting with our assortment. Our top 8 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 athletic with both adults and kids growing double digits. Our athletic penetration increased by nearly 5 points versus the prior year and we see remaining white space in this category. Athletic socks also continued 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 the 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 evolved 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 the 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 omnichannel 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, Us 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 up 500%, monthly engagement up 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 and reenergizing the 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 are 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 wear. 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 customers' 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 unseasonably warm weather led to a break in the usual third quarter trends with boots down double digits and sandals 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 9 straight months of market share gains in Canada, driven by strength in kids. This quarter, we opened 2 new Shoe Company stores in Canada, bringing us to a net 8 new stores 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, rightsize 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 brands 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 brands 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.

Thank you, Doug and good morning everyone. We continue to be pleased with the results of our investment areas that we believe will support our outperformance versus the market in those areas, even while challenges persist. Let me provide a bit more detail on our financial results from the third quarter, followed by an update to our annual guidance. For the third quarter of fiscal 2024, net sales of $777 million were down 1.2% versus the prior year period as reported and were down 3.1% on a 13-week comparable basis. In our U.S. Retail segment, comps were down 2.8% in the third quarter. As mentioned, our performance was bolstered by our back-to-school season, which saw double-digit comps in athletic and kids. Unfortunately, this strong performance was more than offset by negative comps in seasonal categories. Our Canadian Retail segment comps were down 4.6% in the third quarter, driven by unseasonably warm weather during what is usually a heavy boot sales season, as well as continued macro challenges that have led to a reduction in overall consumer discretionary spending activity. Total sales were up double digits as a result of the addition of Rubino locations to our store base. Finally, in our Brand Portfolio segment, sales were up 18.5% in the third quarter. As a reminder, starting this fiscal year, we have harmonized our approach to how we transact business between our Brand Portfolio segment and our Retail segments. This change resulted in approximately $15 million of year-over-year additional sales for our Brands segment in the quarter that gets eliminated in consolidation. We saw notable strength in our DTC sites where we have been investing. In particular, topo.com delivered a triple-digit comp. The strength of Topo, however, was offset by a reduction at vc.com, leading to a total comp decline of 7.5% for our brand DTC sites. Consolidated gross margin of 31.8% in the third quarter decreased 80 basis points versus the prior year, primarily driven by lower IMU as a result of our continued penetration shifts into national brands and specifically more athletic and athleisure footwear. Our adjusted SG&A was 26.7% of sales, a 220 basis point improvement from the third quarter of last year. This was driven by expense cuts made in response to the challenged top line, including the reversal of management incentive compensation accrual in the quarter which was slightly offset by expense deleverage as a result of top line decline in sales. As noted last quarter, we are undertaking an expense efficiency initiative with outside consultants. Our partners have identified a number of opportunities to spend more effectively and we now have a detailed expense savings roadmap that we will begin executing in 2025, and we look forward to sharing more with you in the coming quarters. For the third quarter, adjusted operating income was $43.6 million, an improvement over $31.4 million last year and the first quarterly year-over-year improvement in the last 2 years. In the third quarter of 2024, we had $11.6 million of net interest expense compared to $8.8 million last year. Higher interest expense is a direct result of the term loan we installed last year as well as higher interest rates on our ABL. We drew on our ABL in the third quarter as our team and the Board deemed it prudent to continue our share repurchase activity as evidence of our conviction in our long-term strategy. To that end, we repurchased $50.6 million worth of DBI shares at an average price of $6.59 in Q3, our biggest share repurchase of the year. Our effective tax rate in the third quarter on an adjusted basis was 54.8% compared to 34.6% last year. Our third quarter adjusted net income was $14.5 million versus $14.8 million last year or $0.27 in diluted earnings per share versus $0.24 last year. Turning to our inventory; we ended the third quarter with inventories up 6% versus the prior year, mostly driven by the significant lack of demand for seasonal footwear. As a result, Doug noted that we have pulled back further on fourth quarter receipts for seasonal product to ensure we are moving into a healthy inventory position by the end of the year. We ended the third quarter with $36.2 million of cash and our total liquidity, which includes cash and availability under our ABL revolver, was $154.5 million. Total debt outstanding was $536.3 million as of the end of the third quarter. Before I conclude, I want to take a minute to discuss our fiscal 2024 guidance. Through the first half of the year, we had been signaling our confidence in an inflection point in the third quarter, a sentiment bolstered by the positive comps we saw in August as a result of our successful back-to-school efforts. However, the unseasonably warm weather in the September and October period, coupled with sustained consumer pressure, significantly dampened performance in the last 2 months of the quarter. As we look ahead, we feel it is prudent to give you an update on our expectations for the full 2024 results. As a reminder, our guidance includes the headwind of the sales recorded in the 53rd week of fiscal 2023 as well as the lapping of Nike's return to our assortment in the fourth quarter of 2023. Importantly, we do still continue to project our fourth quarter as our strongest comp growth quarter. Should macro conditions remain consistent with what we are seeing now, we would anticipate net sales growth for the year to be down low single digits, which incorporates the impact of the loss of the 53rd week compared to prior guidance of flat to up slightly. We would expect external wholesale sales in our Brand Portfolio to be down low single digits versus prior guidance of flattish. Additionally, despite depressed sales levels, we have been generating larger profits and the midpoint of our guidance, excluding the impact of the 53rd week, would contemplate the second consecutive quarter of year-over-year adjusted operating income growth, leading to an annual diluted earnings per share outlook in the range of $0.10 to $0.30 versus our prior guidance of $0.50 to $0.60. Our weighted average diluted shares outstanding are anticipated to be approximately 53.5 million for the third quarter and approximately 55.4 million for the full year, given the share repurchase activity that has occurred thus far throughout the year. At this time, we would like to reaffirm our expectations for capital expenditures to be in the range of $60 million to $65 million for the year. Our estimates also assume an effective tax rate of roughly 32%. I remain confident that our outlined initiatives will continue to deliver improved performance over time. Remaining focused on our core business strategy throughout the holidays will position us for stronger performance over the long term as these external challenges ease. With that, we will open the call for questions.

Our first question today comes from Dylan Carden from William Blair.

Jared, sorry if you mentioned this, November trends are just trends generally once the weather kind of cooperated. Did you provide that?

Yes. What we said is what the midpoint of our guidance implies. And to be perfectly honest, I would say it's indicated or informed by the November trends we're seeing. And on kind of through the holiday, what we saw was overall demand slightly below last year but it was distorted. Stores were actually positive digital because we were not chasing excess boot inventory like we were last year. So very different targeted promotions was below last year but gross margin dollars and rate, obviously, were well above last year. And we're seeing that trend continue. So our midpoint of the guidance kind of incorporates all of that.

Great. And then kind of related to that, are you losing share in boots? I mean, the industry was also down double digits. You were down, I think you said 27% and do you care? And I guess sort of the implied question in that is, is this sort of a waterbed effect at this point where you're kind of seeing gains elsewhere but losses in other places and kind of keeping you at a net disadvantaged position until you get the assortment and a better sort of mix?

Yes. This is Doug. Dylan, thanks for your question. We consciously planned the category down, as we mentioned, 15%. It was almost double that decrease. I mean, we're going to be very strategic about continuing to kind of de-weatherize the business, obviously. So we're still working through the level of what that would look like. Fourth quarter is actually an even higher percent of our business in the boot category, obviously, than Q3. And we have seen a bit of a rebound with the weather as we move through the quarter. And then as Jared said, we've been particularly pleased with how we've seen that show up in our stores. I think the assortment work that the teams are doing, I would give credit to that as well as the marketing and messaging. We really showed up for holiday with messaging in our stores. So that's been favorable as well. But again, we're going to continue to be conservative on the seasonal categories as we've stated.

And then to that point, you're not leaving money on the table here by sort of overcorrecting for boots as the weather has turned, I guess, would be one thought.

No, we don't believe so at all. I mean, we still saw a slight decrease in traffic, right? So that's why we're excited about the marketing that we'll be leaning into in a more aggressive way for next year with regards to just driving that traffic but not leaving business on the table at all.

Our next question comes from Mauricio Serna from UBS.

Great. I wanted to ask if you discussed the performance of your top 8 national brands. What are you observing there? Also, can you provide insight into your quarter-to-date trend? Additionally, regarding the balance sheet, I noticed that you mentioned executing your largest share repurchase of the year. How are you addressing debt management given that the business has faced more challenges than anticipated?

Mauricio, this is Doug. Thanks for your question. I'll take the first 2 on the brand performance and then quarter-to-date, and then I'll turn it over to Jared for the debt. Yes, we did share the performance of the top 8 brands. They were up 27% in Q3. It was roughly about 40% of the total. Really proud of the work the team has done on really going after the relationships with those top brands, being mindful also that we're not becoming overly reliant on any of them. If you think about 40% penetration on 8 brands, none of them are close to 10% of the business. So we think that's a very thoughtful approach. Quarter-to-date, as Jared said a couple of moments ago, is in line with the guidance that we're providing. Again, we saw a little bit of softness in Black Friday and Cyber Monday but we're seeing an expansion in margin dollars and that's continuing as we move through December as well, largely due to the fact that we're not as promotional as we were last year because we're in a much better position on inventory.

And on kind of debt level management, what we always look at is more of a liquidity management. We've got 2 big working capital cycles a year. We're actually on the cash generation side of one of those cycles happening right now, very, very typical and cyclical. We are comfortable with our overall debt levels and more importantly, comfortable with our liquidity levels. I would say, obviously, we want to remain cautious as we just look at the consumer environment out in the future. So we feel like we've got our capital structure in the right place right now but always have an eye on that and certainly also an eye on the interest load that it brings.

Got it. Very helpful. And then just could you provide any details on what you've seen with Nike? I remember like you were very excited about just having more product available from that brand this year than even when you had the brand a few years before?

Yes, this is Doug. I mean, we continue to be very pleased with the Nike performance. They couldn't be better partners. Really encouraged. I mean, still a net new positive for us. We have now lapped when they came back to DSW specifically. But again, couldn't be more pleased with the business and the relationship. They've been great partners.

And ladies and gentlemen, at this time, in showing no additional questions, I'd like to turn the floor back over to Doug Howe for closing remarks.

I'd like to thank everyone for joining us today and we look forward to updating you as we continue to make progress on our strategic priorities going forward. Thanks again for joining us.

Ladies and gentlemen, that does conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.