NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Business Operations- Designer Brands Inc. is one of the world's largest designers, producers, and retailers of footwear and accessories. We operate in three reportable segments: the U.S. Retail segment, the Canada Retail segment, and the Brand Portfolio segment. The U.S. Retail segment operates the DSW Designer Shoe Warehouse ("DSW") banner through its direct-to-consumer U.S. stores and e-commerce site (www.dsw.com). The Canada Retail segment operates The Shoe Company and DSW banners through its direct-to-consumer Canada stores and e-commerce sites (www.theshoecompany.ca and www.dsw.ca). The Brand Portfolio segment earns revenue from the wholesale of products to retailers and international distributors, commission for serving retailers as the design and buying agent for products under private labels, and the sale of our branded products through direct-to-consumer e-commerce sites (www.vincecamuto.com, www.keds.com, www.keds.ca, and www.topoathletic.com). 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. We have a 40% 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 provides for the exclusive right to design, source, and sell footwear and handbags under the brands that ABG-Camuto owns. 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 provides for the exclusive right to design, source, and sell Le Tigre-branded footwear. In addition, we own the licensing rights for footwear of the Jessica Simpson brand and for footwear and handbags of the Lucky Brand.
On February 4, 2023, we completed the acquisition of the Keds business from Wolverine World Wide, Inc. This expanded the reach of our Owned Brands offerings, which refers to those brands that we have rights to sell through ownership or license arrangements, into casual and athleisure footwear in the wholesale and direct-to-consumer e-commerce channels, complementing the additions of Le Tigre and Topo Athletic LLC ("Topo") during 2022.
Basis of Presentation- The accompanying unaudited, condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the U.S. ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, we do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal, recurring nature. The condensed consolidated financial position, results of operations, and cash flows for these interim periods are not necessarily indicative of the results that may be expected in future periods. The balance sheet as of January 28, 2023 has been derived from the audited financial statements at that date. The financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the 2022 Form 10-K.
Fiscal Year- 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. 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).
SIGNIFICANT ACCOUNTING POLICIES
Accounting Policies- The complete summary of significant accounting policies is included in the notes to the consolidated financial statements as presented in our 2022 Form 10-K.
Principles of Consolidation- The condensed consolidated financial statements include the accounts of Designer Brands Inc. and its subsidiaries, including any variable interest entities. All intercompany accounts and transactions have been eliminated in consolidation. All amounts are in United States ("U.S.") dollars.
Use of Estimates- The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and reported amounts of net sales and expenses during the reporting periods. Certain estimates and assumptions use forecasted financial information based on information reasonably available to us. Significant estimates and assumptions are required as a part of accounting for sales returns allowances, customer allowances and discounts reserve, gift card breakage income, deferred revenue associated with loyalty programs, valuation of inventories, depreciation and amortization, impairments of long-lived assets, intangibles and goodwill, lease accounting, redeemable noncontrolling interest, income taxes and valuation allowances on deferred tax assets, self-insurance reserves, and acquisitions. Although we believe these estimates and assumptions are reasonable, they are based on management's knowledge of current events and actions we may undertake in the future. Changes in facts and circumstances may result in revised estimates and assumptions, and actual results could differ from these estimates.
Chief Executive Officer Transition- In January 2023, we announced our planned succession process relating to the Company's CEO role, whereby our former CEO, Roger Rawlins, stepped down from his role as CEO and as a member of the 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. As previously disclosed, Mr. Rawlins commenced service as a strategic advisor to the Company and the Board effective April 1, 2023 through April 1, 2024 under the terms of a transition and consulting agreement. In conjunction with the CEO transition, we estimate CEO transition costs will total $8.1 million, consisting of $2.2 million in severance costs, $2.8 million in accelerated stock-based compensation (net of stock awards forfeited), and $3.1 million in retention stock awards to certain members of our leadership team and other related professional fees. During the fourth quarter of 2022 and the first quarter of 2023, we recognized $3.7 million and $2.2 million, respectively, in operating expenses on the consolidated statements of operations, with the remaining estimated $2.2 million to be recorded during the remainder of 2023.
Severance- During the three months ended April 29, 2023 and April 30, 2022, we incurred severance costs, excluding the severance related to the CEO transition, of $2.1 million and $0.7 million, respectively. These costs are included in operating expenses in the condensed consolidated statements of operations. As of April 29, 2023, January 28, 2023, and April 30, 2022, we had $4.7 million, $5.7 million, and $1.1 million, respectively, of severance liability, including the severance related to the CEO transition, included in accrued expenses on the condensed consolidated balance sheets.
Income Taxes- For the three months ended April 29, 2023 and April 30, 2022, our effective tax rate was 10.3% and 30.0%, respectively. The rate for the three months ended April 29, 2023 was impacted by net discrete tax benefits, including federal and state valuation allowance adjustments, partially offset by permanent non-deductible compensation. The rate for the three months ended April 30, 2022 was impacted by permanent non-deductible compensation.
Cash, Cash Equivalents, and Restricted Cash- Cash and cash equivalents represent cash, money market funds, and credit card receivables that generally settle within three days. Restricted cash represented cash that was restricted as to withdrawal or usage and consisted of a mandatory cash deposit maintained for certain insurance policies and letters of credit.
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown on the condensed consolidated statements of cash flows:
| | | | | | | | | | | | | | | | | |
(in thousands) | April 29, 2023 | | January 28, 2023 | | April 30, 2022 |
Cash and cash equivalents | $ | 50,569 | | | $ | 58,766 | | | $ | 54,802 | |
Restricted cash, included in prepaid expenses and other current assets | — | | | — | | | 1,767 | |
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows | $ | 50,569 | | | $ | 58,766 | | | $ | 56,569 | |
Fair Value- Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are categorized using defined hierarchical levels related to the subjectivity associated with the inputs to fair value measurements as follows:
• Level 1 - Quoted prices in active markets for identical assets or liabilities.
• Level 2 - Quoted prices for similar assets or liabilities in active markets or inputs that are observable.
• Level 3 - Unobservable inputs in which little or no market activity exists.
The carrying value of cash and cash equivalents, restricted cash, receivables, and accounts payables approximated their fair values due to their short-term nature. The carrying value of borrowings under our senior secured asset-based revolving credit facility ("ABL Revolver") approximated fair value based on the terms and variable interest rates.
2. ACQUISITIONS
Acquisition of Topo- On December 13, 2022, we acquired a 79.4% ownership interest in Topo for $19.3 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. 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. The redemption price is defined in the operating agreement and is based primarily on a fixed multiple of Topo's trailing 12 months of adjusted earnings before interest, taxes, depreciation, amortization, and other agreed upon adjustments.
The final purchase price and the allocation of the total consideration to the fair values of the assets, liabilities, and redeemable noncontrolling interest consisted of the following:
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(in thousands) | Preliminary Purchase Price and Allocation as of December 13, 2022 | | Measurement Period Adjustments | | Final Purchase Price Allocation as of April 29, 2023 |
Purchase price cash consideration | $ | 19,062 | | | $ | 193 | | | $ | 19,255 | |
Fair value of assets and liabilities acquired: | | | | | |
Accounts receivables | $ | 3,195 | | | $ | (150) | | | $ | 3,045 | |
Inventories | 5,612 | | | (20) | | | 5,592 | |
Goodwill | 3,460 | | | 868 | | | 4,328 | |
Intangible assets | 12,500 | | | (500) | | | 12,000 | |
Other assets | 1,898 | | | — | | | 1,898 | |
Accounts payable and other liabilities | (4,438) | | | (5) | | | (4,443) | |
Redeemable noncontrolling interest | (3,165) | | | — | | | (3,165) | |
| $ | 19,062 | | | $ | 193 | | | $ | 19,255 | |
The fair value of the intangible assets relates to customer relationships and a tradename, which are amortized over a useful life of 10 and 15 years, respectively, and are based on the excess earnings method under the income approach. The fair value measurements are based on significant unobservable inputs, including discounted future cash flows and customer attrition rates. The fair value measurement of the redeemable noncontrolling interest was calculated by considering the implied fair value of Topo using the purchase price and an estimated amount to redeem the noncontrolling interest. The goodwill represents the excess of the purchase price over the fair value of the net assets acquired and was primarily attributable to acquiring an established design and sourcing process for athletic footwear. Goodwill is expected to be deductible for income tax purposes. During 2022, we incurred $1.3 million of acquisition-related costs in connection with the acquisition of Topo, which was included in operating expenses on the consolidated statements of operations.
Acquisition of Keds- On February 4, 2023, we acquired the Keds business, including the Keds brand, inventory, and inventory-related accounts payable, from Wolverine World Wide, Inc. ("Seller") for $124.9 million. The cash portion of the purchase price was funded with available cash and borrowings on the ABL Revolver.
The preliminary purchase price and the allocation of the total consideration to the fair values of the assets and liabilities consisted of the following:
| | | | | | | | | |
(in thousands) | Preliminary Purchase Price and Allocation as of February 4, 2023 | | | | |
Purchase price: | | | | | |
Cash Consideration | $ | 109,360 | | | | | |
Due to Seller | 19,040 | | | | | |
Due from Seller for estimated contingent consideration | (3,500) | | | | | |
| $ | 124,900 | | | | | |
Fair value of assets and liabilities acquired: | | | | | |
Inventories | $ | 46,700 | | | | | |
Goodwill | 36,787 | | | | | |
Intangible assets | 44,800 | | | | | |
Accounts payable | (3,387) | | | | | |
| $ | 124,900 | | | | | |
We recorded an allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their fair value at the acquisition date. The purchase price is subject to adjustments primarily based upon contingent considerations as provided by the purchase agreement, which are based on recognized sales and incurred marketing costs for certain identified aged inventories and may result in the Seller paying us up to $15.0 million by March 2024. We recorded an estimated amount due from Seller at fair value based on our estimated probability of the conditions being met requiring payment. The allocation of the purchase price is based on certain preliminary valuations and analysis that have not been completed as of the date of this filing. Any subsequent changes in the estimated fair values assumed upon the finalization of more detailed analysis within the measurement period will change the allocation of the purchase price and will be adjusted during the period in which the amounts are determined. We expect to finalize the valuations as soon as practicable, but not later than one year from the acquisition date.
The fair value of inventories, which is made up of finished goods, was determined based on market assumptions for realizing a reasonable profit after selling costs. The fair value of the intangible assets relates to $40.1 million of an indefinite lived tradename and $4.7 million of customer relationships, which is amortized over a useful life of 10 years, and are based on the excess earnings method under the income approach. The fair value measurements are based on significant unobservable inputs, including discounted future cash flows and customer attrition rates. The goodwill represents the excess of the purchase price over the fair value of the net assets acquired and was primarily attributable to acquiring an established design and sourcing process for casual footwear, including kids' footwear, with international distribution. We determined that goodwill should be allocated to reporting units within the U.S. Retail and Brand Portfolio segments based on each reporting unit’s estimated benefit from the expected synergies from the Keds business acquisition. We recorded a preliminary allocation of goodwill of $25.5 million to the U.S. Retail segment based primarily on a discounted cash flow of the sourcing benefit. The remaining $11.3 million of goodwill was allocated to the Brand Portfolio segment. Goodwill is expected to be deductible for income tax purposes. We incurred $2.9 million of acquisition-related costs in connection with the acquisition of the Keds business, which was included in operating expenses on the condensed consolidated statements of operations.
Combined Results of Acquired Entities- The results of operations for Topo and the Keds business for the three months ended April 29, 2023 were not material and are included in the condensed consolidated statements of operations within the Brand Portfolio segment. Supplemental pro forma results of operations reflecting the acquisitions are not presented as the impact on our consolidated financial results would not have been material.
3. REVENUE
DISAGGREGATION OF NET SALES
Net Sales by Brand Categories- The following table presents net sales disaggregated by brand categories for each segment: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | U.S. Retail | | Canada Retail | | Brand Portfolio | | Eliminations | | Consolidated |
Three months ended April 29, 2023 | | | | | | | | | |
Owned Brands:(1) | | | | | | | | | |
Direct-to-consumer | $ | 123,209 | | | $ | — | | | $ | 10,624 | | | $ | — | | | $ | 133,833 | |
External customer wholesale, commission income, and other | — | | | — | | | 64,617 | | | — | | | 64,617 | |
Intersegment wholesale and commission income | — | | | — | | | 17,742 | | | (17,742) | | | — | |
Total Owned Brands | 123,209 | | | — | | | 92,983 | | | (17,742) | | | 198,450 | |
National brands | 489,677 | | | — | | | — | | | — | | | 489,677 | |
Canada Retail(2) | — | | | 53,955 | | | — | | | — | | | 53,955 | |
Total net sales | $ | 612,886 | | | $ | 53,955 | | | $ | 92,983 | | | $ | (17,742) | | | $ | 742,082 | |
Three months ended April 30, 2022 | | | | | | | | | |
Owned Brands:(1) | | | | | | | | | |
Direct-to-consumer | $ | 139,155 | | | $ | — | | | $ | 6,527 | | | $ | — | | | $ | 145,682 | |
External customer wholesale, commission income, and other | — | | | — | | | 64,956 | | | — | | | 64,956 | |
Intersegment wholesale and commission income | — | | | — | | | 25,973 | | | (25,973) | | | — | |
Total Owned Brands | 139,155 | | | — | | | 97,456 | | | (25,973) | | | 210,638 | |
National brands | 563,590 | | | — | | | — | | | — | | | 563,590 | |
Canada Retail(2) | — | | | 56,315 | | | — | | | — | | | 56,315 | |
Total net sales | $ | 702,745 | | | $ | 56,315 | | | $ | 97,456 | | | $ | (25,973) | | | $ | 830,543 | |
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(1) "Owned Brands" refers to those brands we have rights to sell through ownership or license arrangements. Beginning in the first quarter of 2023, sales of the Keds brand are included in Owned Brands as a result of our acquisition of the Keds business. Sales of the Keds brand in periods prior to the first quarter of 2023 are not restated as this brand was considered a national brand during those periods.
(2) We currently do not report the Canada Retail segment net sales by brand categories.
Net Sales by Product and Service Categories- The following table presents net sales disaggregated by product and service
categories for each segment:
| | | | | | | | | | | | | | | |
| Three months ended | | |
(in thousands) | April 29, 2023 | | April 30, 2022 | | | | |
Net sales: | | | | | | | |
U.S. Retail segment: | | | | | | | |
Women's footwear | $ | 403,181 | | | $ | 469,131 | | | | | |
Men's footwear | 124,554 | | | 145,807 | | | | | |
Kids' footwear | 44,294 | | | 52,918 | | | | | |
Accessories and other | 40,857 | | | 34,889 | | | | | |
| 612,886 | | | 702,745 | | | | | |
Canada Retail segment: | | | | | | | |
Women's footwear | 30,514 | | | 30,004 | | | | | |
Men's footwear | 13,866 | | | 14,428 | | | | | |
Kids' footwear | 7,544 | | | 9,817 | | | | | |
Accessories and other | 2,031 | | | 2,066 | | | | | |
| 53,955 | | | 56,315 | | | | | |
Brand Portfolio segment: | | | | | | | |
Wholesale | 80,784 | | | 87,775 | | | | | |
Commission income and other | 1,575 | | | 3,154 | | | | | |
Direct-to-consumer | 10,624 | | | 6,527 | | | | | |
| 92,983 | | | 97,456 | | | | | |
Total segment net sales | 759,824 | | | 856,516 | | | | | |
Elimination of intersegment sales | (17,742) | | | (25,973) | | | | | |
Total net sales | $ | 742,082 | | | $ | 830,543 | | | | | |
DEFERRED REVENUE LIABILITIES
We record deferred revenue liabilities, included in accrued expenses on the condensed consolidated balance sheets, for remaining obligations we have to our customers. The following table presents the changes and total balances for gift cards and loyalty programs:
| | | | | | | | | | | | | | | |
| Three months ended | | |
(in thousands) | April 29, 2023 | | April 30, 2022 | | | | |
Gift cards: | | | | | | | |
Beginning of period | $ | 35,121 | | | $ | 36,783 | | | | | |
Gift cards redeemed and breakage recognized to net sales | (16,449) | | | (18,260) | | | | | |
Gift cards issued | 12,261 | | | 14,321 | | | | | |
End of period | $ | 30,933 | | | $ | 32,844 | | | | | |
Loyalty programs: | | | | | | | |
Beginning of period | $ | 16,900 | | | $ | 15,736 | | | | | |
Loyalty certificates redeemed and expired and other adjustments recognized to net sales | (7,592) | | | (7,881) | | | | | |
Deferred revenue for loyalty points issued | 7,324 | | | 8,388 | | | | | |
End of period | $ | 16,632 | | | $ | 16,243 | | | | | |
4. RELATED PARTY TRANSACTIONS
SCHOTTENSTEIN AFFILIATES
We have transactions with entities owned or controlled by Jay L. Schottenstein, the executive chairman of our Board, and members of his family (collectively the "Schottenstein Affiliates"). As of April 29, 2023, the Schottenstein Affiliates beneficially owned 22% of the Company's outstanding common shares, representing 57% of the combined voting power of the Company, consisting of 6.8 million Class A common shares and 7.7 million Class B common shares. The following summarizes the related party transactions with the Schottenstein Affiliates for the relevant periods:
Leases- We lease certain store and office locations that are owned by the Schottenstein Affiliates. We also leased a fulfillment
center from a Schottenstein Affiliate through September 2022 that was not renewed. During the three months ended April 29, 2023 and April 30, 2022, we recorded rent expense from leases with Schottenstein Affiliates of $1.9 million
and $2.5 million, respectively. As of April 29, 2023, January 28, 2023, and April 30, 2022, we had related party current operating lease liabilities of $5.2 million, $5.6 million, and $5.7 million, respectively, and non-current operating lease liabilities of $13.0 million, $14.0 million, and $10.6 million, respectively.
Other Purchases and Services- For the three months ended April 29, 2023 and April 30, 2022, we had other purchases and services we incurred from the Schottenstein Affiliates of $0.6 million and $1.1 million, respectively.
Due to Related Parties- Amounts due to the Schottenstein Affiliates, other than operating lease liabilities, were immaterial for all periods presented.
EQUITY METHOD INVESTMENTS
ABG-Camuto- We have a 40% ownership interest in ABG-Camuto. We are party to a licensing agreement with ABG-Camuto, pursuant to which we pay royalties on the net sales of the brands owned by ABG-Camuto, subject to guaranteed minimums. For the three months ended April 29, 2023 and April 30, 2022, we recorded royalty expense for amounts paid to ABG-Camuto of $4.5 million and $4.6 million, respectively.
Le Tigre- In July 2022, we acquired a 33.3% ownership interest in Le Tigre. We are also party to a license agreement with Le Tigre whereby we pay royalties on our net sales of the Le Tigre brand, subject to guaranteed minimums. Activity with Le Tigre during the three months ended April 29, 2023 was immaterial.
5. EARNINGS PER SHARE
Basic earnings per share is based on net income attributable to Designer Brands Inc. and the weighted average of Class A and Class B common shares outstanding. Diluted earnings per share reflects the potential dilution of common shares adjusted for outstanding stock options and restricted stock units ("RSUs") calculated using the treasury stock method.
The following is a reconciliation between basic and diluted weighted average shares outstanding, as used in the calculation of earnings per share attributable to Designer Brands Inc.:
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
(in thousands) | April 29, 2023 | | April 30, 2022 | | | | |
Weighted average basic shares outstanding | 64,371 | | | 72,923 | | | | | |
Dilutive effect of stock-based compensation awards | 2,671 | | | 4,001 | | | | | |
Weighted average diluted shares outstanding | 67,042 | | | 76,924 | | | | | |
For the three months ended April 29, 2023 and April 30, 2022, the number of shares relating to potentially dilutive stock-based compensation awards that were excluded from the computation of diluted earnings per share due to their anti-dilutive effect was 4.5 million and 3.0 million, respectively.
6. STOCK-BASED COMPENSATION
Stock-based compensation expense, included in operating expenses in the condensed consolidated statements of operations, consisted of the following:
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| Three Months Ended | | |
(in thousands) | April 29, 2023 | | April 30, 2022 | | | | |
Stock options | $ | — | | | $ | 101 | | | | | |
Restricted and director stock units | 11,654 | | | 8,493 | | | | | |
| $ | 11,654 | | | $ | 8,594 | | | | | |
The following table summarizes the stock-based compensation award share activity for RSUs for the three months ended April 29, 2023:
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(in thousands) | Shares of Time-Based RSUs | | Shares of Performance-Based RSUs |
Outstanding - beginning of period | 6,790 | | 969 | |
Granted | 2,189 | | | 801 | |
Vested | (3,179) | | | (249) | |
Forfeited | (147) | | | (79) | |
Outstanding - end of period | 5,653 | | | 1,442 | |
7. SHAREHOLDERS' EQUITY
Shares- Our Class A common shares are listed for trading under the ticker symbol "DBI" on the New York Stock Exchange. There is currently no public market for the Company's Class B common shares, but the Class B common shares can be converted into the Company's Class A common shares at the election of the holder on a share-for-share basis. Holders of Class A common shares are entitled to one vote per share and holders of Class B common shares are entitled to eight votes per share on matters submitted to shareholders for approval.
The following table provides additional information for our common shares:
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(in thousands) | April 29, 2023 | | January 28, 2023 | | April 30, 2022 |
| Class A | | Class B | | Class A | | Class B | | Class A | | Class B |
Authorized shares | 250,000 | | | 100,000 | | | 250,000 | | | 100,000 | | | 250,000 | | | 100,000 | |
Issued shares | 90,860 | | | 7,733 | | | 88,803 | | | 7,733 | | | 88,275 | | | 7,733 | |
Outstanding shares | 57,978 | | | 7,733 | | | 55,921 | | | 7,733 | | | 64,450 | | | 7,733 | |
Treasury shares | 32,882 | | | — | | | 32,882 | | | — | | | 23,825 | | | — | |
We have authorized 100 million shares of no par value preferred shares, with no shares issued for any of the periods presented.
Share Repurchases- On August 17, 2017, the Board 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. As of April 29, 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. Under this share repurchase program, shares will be repurchased in the open market at times and in amounts considered appropriate based on price and market conditions.
8. RECEIVABLES
Receivables, net, consisted of the following:
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(in thousands) | April 29, 2023 | | January 28, 2023 | | April 30, 2022 |
Customer accounts receivables: | | | | | |
Serviced by third-party provider with guaranteed payment | $ | 35,132 | | | $ | 19,539 | | | $ | 50,591 | |
Serviced by third-party provider without guaranteed payment | 250 | | | 103 | | | 232 | |
Serviced in-house | 12,535 | | | 5,138 | | | 3,246 | |
Income tax receivable | 42,018 | | | 44,021 | | | 162,788 | |
Other receivables | 10,763 | | | 9,274 | | | 6,573 | |
Total receivables | 100,698 | | | 78,075 | | | 223,430 | |
Allowance for doubtful accounts | (461) | | | (312) | | | (1,133) | |
| $ | 100,237 | | | $ | 77,763 | | | $ | 222,297 | |
9. GOODWILL AND INTANGIBLE ASSETS
GOODWILL
The following table presents the changes to goodwill by segment:
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| Three months ended |
(in thousands) | April 29, 2023 | | April 30, 2022 |
| Goodwill | | Accumulated Impairments | | Net | | Goodwill | | Accumulated Impairments | | Net |
Beginning of period by segment: | | | | | | | | | | | |
U.S. Retail | $ | 93,655 | | | $ | — | | | $ | 93,655 | | | $ | 93,655 | | | $ | — | | | $ | 93,655 | |
Canada Retail | 41,357 | | | (41,357) | | | — | | | 43,114 | | | (43,114) | | | — | |
Brand Portfolio | 23,449 | | | (19,989) | | | 3,460 | | | 19,989 | | | (19,989) | | | — | |
| 158,461 | | | (61,346) | | | 97,115 | | | 156,758 | | | (63,103) | | | 93,655 | |
Activity by Segment: | | | | | | | | | | | |
U.S. Retail- | | | | | | | | | | | |
Acquired Keds goodwill | 25,518 | | | — | | | 25,518 | | | — | | | — | | | — | |
Canada Retail- | | | | | | | | | | | |
Currency translation adjustment | (805) | | | 805 | | | — | | | (72) | | | 72 | | | — | |
Brand Portfolio: | | | | | | | | | | | |
Purchase price and allocation adjustments | 868 | | | — | | | 868 | | | — | | | — | | | — | |
Acquired Keds goodwill | 11,269 | | | — | | | 11,269 | | | — | | | — | | | — | |
| 36,850 | | | 805 | | | 37,655 | | | (72) | | | 72 | | | — | |
End of period by segment: | | | | | | | | | | | |
U.S. Retail | 119,173 | | | — | | | 119,173 | | | 93,655 | | | — | | | 93,655 | |
Canada Retail | 40,552 | | | (40,552) | | | — | | | 43,042 | | | (43,042) | | | — | |
Brand Portfolio | 35,586 | | | (19,989) | | | 15,597 | | | 19,989 | | | (19,989) | | | — | |
| $ | 195,311 | | | $ | (60,541) | | | $ | 134,770 | | | $ | 156,686 | | | $ | (63,031) | | | $ | 93,655 | |
INTANGIBLE ASSETS
Intangible assets consisted of the following:
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(in thousands) | Cost | | Accumulated Amortization | | Net |
April 29, 2023 | | | | | |
Definite-lived customer relationships | $ | 12,426 | | | $ | (3,178) | | | $ | 9,248 | |
Definite-lived tradename | 11,953 | | | (501) | | | 11,452 | |
Indefinite-lived trademarks and tradenames | 54,750 | | | — | | | 54,750 | |
| $ | 79,129 | | | $ | (3,679) | | | $ | 75,450 | |
January 28, 2023 | | | | | |
Definite-lived customer relationships | $ | 7,852 | | | $ | (1,454) | | | $ | 6,398 | |
Definite-lived tradename | 10,853 | | | (292) | | | 10,561 | |
Indefinite-lived trademarks and tradenames | 14,907 | | | — | | | 14,907 | |
| $ | 33,612 | | | $ | (1,746) | | | $ | 31,866 | |
April 30, 2022 | | | | | |
Definite-lived customer relationships | $ | 1,407 | | | $ | (1,407) | | | $ | — | |
Definite-lived tradename | 4,853 | | | — | | | 4,853 | |
Indefinite-lived trademarks and tradenames | 15,502 | | | — | | | 15,502 | |
| $ | 21,762 | | | $ | (1,407) | | | $ | 20,355 | |
10. ACCRUED EXPENSES
Accrued expenses consisted of the following:
| | | | | | | | | | | | | | | | | |
(in thousands) | April 29, 2023 | | January 28, 2023 | | April 30, 2022 |
Gift cards | $ | 30,933 | | | $ | 35,121 | | | $ | 32,844 | |
Accrued compensation and related expenses | 19,645 | | | 45,019 | | | 26,693 | |
Accrued taxes | 23,122 | | | 19,419 | | | 32,526 | |
Loyalty programs deferred revenue | 16,632 | | | 16,900 | | | 16,243 | |
Sales returns allowances | 21,034 | | | 18,107 | | | 20,855 | |
Customer allowances and discounts | 1,185 | | | 1,230 | | | 2,175 | |
Other | 58,208 | | | 54,880 | | | 76,946 | |
| $ | 170,759 | | | $ | 190,676 | | | $ | 208,282 | |
11. 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. 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. In addition, the ABL Revolver includes a first-in last-out term loan ("FILO Term Loan") of up to $30.0 million, which was drawn in full on the date of the amendment. 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. 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 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. As of April 29, 2023, the revolving line of credit (excluding the FILO Term Loan) had a borrowing base of $565.8 million, with $360.5 million in outstanding borrowings and $5.0 million in letters of credit issued, resulting in $200.3 million available for borrowings.
Borrowings under the revolving line of credit and letters of credit issued under the ABL Revolver accrue interest, at our option, at a rate equal to: (A) a base rate per annum equal to the greatest of (i) the prime rate, (ii) the Fed Funds Rate (as defined in the credit facility agreement and subject to a floor of 0%) plus 0.5%, and (iii) the one-month Adjusted Term SOFR (as defined in the credit facility agreement) plus 1.0%; or (B) a one-month, three-month, or six-month Adjusted Term SOFR per annum (subject to a floor of 0%), plus, in each instance, an applicable rate to be determined based on average availability. The FILO Term Loan accrues interest, at our option, at a rate equal to (A) a fluctuating interest rate per annum equal to the greatest of (i) the prime rate, (ii) the Fed Funds Rate plus 0.5%, or (iii) Adjusted Term SOFR plus 1.0%, plus 2.25%; or (B) Adjusted Term SOFR for the interest period in effect for such borrowing plus 3.25%. Commitment fees are based on the unused portion of the ABL Revolver available for borrowings. Interest expense related to the ABL Revolver includes interest on borrowings and letters of credit, with an interest rate of 6.8% as of April 29, 2023, commitment fees, and the amortization of debt issuance costs.
Debt Covenants- As of April 29, 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 $47.3 million or 10.0% of the maximum borrowing amount. 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. There are specific exceptions to these covenants including, in some cases, upon satisfying specified payment conditions based on availability. The ABL Revolver contains customary events of default, including failure to comply with certain financial and other covenants. 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. As of April 29, 2023, we were in compliance with all financial covenants contained in the ABL Revolver.
Termination of Term Loan- On February 8, 2022, we settled in full the $231.3 million principal amount outstanding on that date under our senior secured term loan agreement ("Term Loan"). In connection with this settlement, during the three months ended April 30, 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.
12. COMMITMENTS AND CONTINGENCIES
Legal Proceedings- We are involved in various legal proceedings that are incidental to the conduct of our business. Although it is not possible to predict with certainty the eventual outcome of any litigation, we believe the amount of any potential liability with respect to current legal proceedings will not be material to our results of operations or financial condition. As additional information becomes available, we will assess any potential liability related to pending litigation and revise the estimates as needed.
Guarantees- We provide guarantees for lease obligations that are scheduled to expire in 2025 for locations that have been leased to third parties. If a third party does not pay the rent or vacates the premise, we may be required to make full rent payments to the landlord. As of April 29, 2023, the total future payment requirements for these guarantees were approximately $7.4 million.
13. SEGMENT REPORTING
The following table provides certain financial data by segment reconciled to the condensed consolidated financial statements:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | U.S. Retail | | Canada Retail | | Brand Portfolio | | Eliminations | | Consolidated |
Three months ended April 29, 2023 | | | | | | | | | |
Net sales: | | | | | | | | | |
External customer sales | $ | 612,886 | | | $ | 53,955 | | | $ | 75,241 | | | $ | — | | | $ | 742,082 | |
Intersegment sales | — | | | — | | | 17,742 | | | (17,742) | | | — | |
Total net sales | $ | 612,886 | | | $ | 53,955 | | | $ | 92,983 | | | $ | (17,742) | | | $ | 742,082 | |
Gross profit | $ | 196,814 | | | $ | 17,174 | | | $ | 22,085 | | | $ | 1,666 | | | $ | 237,739 | |
Income from equity investments | $ | — | | | $ | — | | | $ | 2,331 | | | $ | — | | | $ | 2,331 | |
Three months ended April 30, 2022 | | | | | | | | | |
Net sales: | | | | | | | | | |
External customer sales | $ | 702,745 | | | $ | 56,315 | | | $ | 71,483 | | | $ | — | | | $ | 830,543 | |
Intersegment sales | — | | | — | | | 25,973 | | | (25,973) | | | — | |
Total net sales | $ | 702,745 | | | $ | 56,315 | | | $ | 97,456 | | | $ | (25,973) | | | $ | 830,543 | |
Gross profit | $ | 233,067 | | | $ | 18,873 | | | $ | 23,842 | | | $ | (37) | | | $ | 275,745 | |
Income from equity investment | $ | — | | | $ | — | | | $ | 1,945 | | | $ | — | | | $ | 1,945 | |
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14. SUBSEQUENT EVENT
Tender Offer and New Term Loan- On June 8, 2023, we announced that our Board has authorized the repurchase of up to $100.0 million of the Company's Class A common shares through a modified "Dutch Auction" tender offer ("Tender Offer"), at an anticipated cash purchase price of not less than $7.00 per share and not more than $8.00 per share, less any applicable withholding taxes and without interest. We intend to enter into a $135.0 million term loan agreement to be used principally to fund the Tender Offer, together with fees and expenses, with the remaining availability to be used for general corporate purposes.