~~DSW~~

DESIGNER BRANDS INC.

CONDENSED CONSOLIDATED ~~BALANCE SHEETS~~STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited and in thousands)


	Three months ended				Six months ended
	July 31, 2021		August 1, 2020		July 31, 2021		August 1, 2020
Net income (loss)	$	42,860	$	(98,214)	$	59,886	$	(314,072)
Other comprehensive income (loss), net of income taxes:
Foreign currency translation gain (loss)	(298)		1,290		245		(2,251)
Unrealized net gain on debt securities	—		—		—		195
Reclassification adjustment for net gains realized in net loss	—		—		—		(368)
Total other comprehensive income (loss), net of income taxes	(298)		1,290		245		(2,424)
Total comprehensive income (loss)	$	42,562	$	(96,924)	$	60,131	$	(316,496)

October 28, 2017 January 28, 2017 October 29, 2016
ASSETS
Cash and cash equivalents $ 149,485
$ 110,657
$ 60,962
Short-term investments 180,066
98,530
78,512
Accounts receivable 19,102
18,456
20,334
Accounts receivable from related parties 1,315
550
1,029
Inventories 546,553
499,995
562,701
Prepaid expenses and other current assets 25,445
31,074
24,566
Prepaid rent to related parties —
4
13
Total current assets 921,966
759,266
748,117
Property and equipment, net 358,154
375,251
381,218
Long-term investments —
77,904
76,126
Goodwill 25,899
79,689
77,208
Deferred income taxes 35,284
14,934
21,103
Long-term prepaid rent to related parties 688
768
795
Equity investment in Town Shoes 7,180
15,830
17,996
Note receivable from Town Shoes 60,249
53,121
50,579
Intangible assets 3,135
35,108
38,243
Other assets 19,023
16,605
20,530
Total assets $ 1,431,578
$ 1,428,476
$ 1,431,915
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 193,607
$ 185,497
$ 160,621
Accounts payable to related parties 706
774
641
Accrued expenses 141,990
130,334
143,653
Total current liabilities 336,303
316,605
304,915
Non-current liabilities 141,752
141,179
144,654
Contingent consideration liability 4,962
33,204
58,923
Total liabilities 483,017
490,988
508,492
Commitments and contingencies

Shareholders' equity:
Common shares paid-in capital, no par value; 250,000 Class A Common Shares authorized; 85,346, 85,038 and 84,875 issued, respectively; 72,255, 72,447 and 72,635 outstanding, respectively; 100,000 Class B Common Shares authorized, 7,733 issued and outstanding 957,960
946,351
941,485
Preferred shares, no par value; 100,000 authorized; no shares issued or outstanding —
—
—
Treasury shares, at cost, 13,091, 12,591 and 12,240 outstanding, respectively (325,906 ) (316,531 ) (309,229 )
Retained earnings 354,315
346,602
332,051
Basis difference related to acquisition of commonly controlled entity (24,993 ) (24,993 ) (24,993 )
Accumulated other comprehensive loss (12,815 ) (13,941 ) (15,891 )
Total shareholders' equity 948,561
937,488
923,423
Total liabilities and shareholders' equity $ 1,431,578
$ 1,428,476
$ 1,431,915

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

~~DSW~~

DESIGNER BRANDS INC.

CONDENSED CONSOLIDATED ~~STATEMENTS OF CASH FLOWS~~BALANCE SHEETS

(unaudited and in thousands)


	July 31, 2021		January 30, 2021		August 1, 2020
ASSETS
Cash and cash equivalents	$	46,458	$	59,581	$	206,720

Receivables, net	199,371		196,049		49,240
Inventories	504,316		473,183		445,044
Prepaid expenses and other current assets	53,616		51,772		69,456
Total current assets	803,761		780,585		770,460
Property and equipment, net	271,401		296,469		332,730
Operating lease assets	676,665		700,481		797,413
Goodwill	93,655		93,655		93,655
Intangible assets, net	15,905		15,635		15,663
Deferred tax assets	—		—		182,866
Equity investment	55,149		58,598		56,690
Other assets	29,513		31,172		23,780
Total assets	$	1,946,049	$	1,976,595	$	2,273,257
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable	$	299,322	$	245,071	$	224,693
Accrued expenses	222,055		200,326		202,831
Current maturities of long-term debt	62,500		62,500		—
Current operating lease liabilities	190,853		244,786		241,694
Total current liabilities	774,730		752,683		669,218
Long-term debt	184,569		272,319		393,000
Non-current operating lease liabilities	645,136		677,735		778,826
Other non-current liabilities	30,502		30,841		25,586
Total liabilities	1,634,937		1,733,578		1,866,630
Commitments and contingencies			0		0
0Shareholders' equity:
Common shares paid-in capital, no par value	998,117		990,153		980,749
Treasury shares, at cost	(515,065)		(515,065)		(515,065)
Retained deficit	(168,899)		(228,785)		(54,138)
Accumulated other comprehensive loss	(3,041)		(3,286)		(4,919)
Total shareholders' equity	311,112		243,017		406,627
Total liabilities and shareholders' equity	$	1,946,049	$	1,976,595	$	2,273,257

Nine months ended
October 28, 2017 October 29, 2016
Cash flows from operating activities:

Net income $ 55,603
$ 94,009
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 61,444
61,029
Stock-based compensation expense 11,339
10,156
Deferred income taxes (20,381 ) 712
Income from Town Shoes (543 ) (1,237 )
Goodwill and intangible assets impairment charges 82,701
—
Change in fair value of contingent consideration liability (28,926 ) 5,080
Loss on disposal of long-lived assets 1,050
699
Loss on foreign currency transactions 2,186
—
Amortization of investment discounts and premiums 481
992
Change in operating assets and liabilities:
Accounts receivable (1,411 ) (4,276 )
Inventories (46,558 ) (48,313 )
Prepaid expenses and other current assets 979
11,318
Accounts payable 8,790
(55,572 )
Accrued expenses 10,598
32,570
Other 1,224
3,592
Net cash provided by operating activities 138,576
110,759
Cash flows from investing activities:
Cash paid for property and equipment (39,552 ) (73,157 )
Purchases of available-for-sale investments (98,855 ) (69,960 )
Sales of available-for-sale investments 96,649
215,524
Additional borrowings by Town Shoes (5,689 ) (7,023 )
Acquisition of Ebuys —
(59,481 )
Net cash provided by (used in) investing activities (47,447 ) 5,903
Cash flows from financing activities:
Proceeds from exercise of stock options 1,133
3,615
Net change in vendor payment program 1,058
—
Payment of credit facility costs (1,018 ) —
Cash paid for income taxes for stock-based compensation shares withheld (863 ) (2,421 )
Cash paid for treasury shares (9,375 ) (42,698 )
Dividends paid (47,890 ) (49,098 )
Net cash used in financing activities (56,955 ) (90,602 )
Net increase in cash, cash equivalents, and restricted cash 34,174
26,060
Cash, cash equivalents, and restricted cash, beginning of period 115,311
40,171
Cash, cash equivalents, and restricted cash, end of period $ 149,485
$ 66,231
Supplemental disclosures of cash flow information -
Cash paid during the period for income taxes $ 64,441
$ 40,057
Non-cash investing and financing activities:
Property and equipment purchases not yet paid $ 7,138
$ 4,829
Ebuys contingent purchase price $ —
$ 53,843

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

DESIGNER BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(unaudited and in thousands, except per share data)


	Number of shares			Amounts
	Class A common shares	Class B common shares	Treasury shares	Common shares paid in capital		Treasury shares		Retained earnings (deficit)		Accumulated other comprehensive loss		Total
Three months ended July 31, 2021
Balance, May 1, 2021	65,134	7,733	22,169	$	992,379	$	(515,065)	$	(211,759)	$	(2,743)	$	262,812
Net income	—	—	—	—		—		42,860		—		42,860
Stock-based compensation activity	102	—	—	5,738		—		—		—		5,738

Foreign currency translation adjustment	—	—	—	—		—		—		(298)		(298)
Balance, July 31, 2021	65,236	7,733	22,169	$	998,117	$	(515,065)	$	(168,899)	$	(3,041)	$	311,112
Three months ended August 1, 2020
Balance, May 2, 2020	64,302	7,733	22,169	$	975,304	$	(515,065)	$	44,076	$	(6,209)	$	498,106
Net loss	—	—	—	—		—		(98,214)		—		(98,214)
Stock-based compensation activity	276	—	—	5,445		—		—		—		5,445


Foreign currency translation adjustment	—	—	—	—		—		—		1,290		1,290
Balance, August 1, 2020	64,578	7,733	22,169	$	980,749	$	(515,065)	$	(54,138)	$	(4,919)	$	406,627
Six months ended July 31, 2021
Balance, January 30, 2021	64,666	7,733	22,169	$	990,153	$	(515,065)	$	(228,785)	$	(3,286)	$	243,017
Net income	—	—	—	—		—		59,886		—		59,886
Stock-based compensation activity	570	—	—	7,964		—		—		—		7,964


Foreign currency translation adjustment	—	—	—	—		—		—		245		245
Balance, July 31, 2021	65,236	7,733	22,169	$	998,117	$	(515,065)	$	(168,899)	$	(3,041)	$	311,112
Six months ended August 1, 2020
Balance, February 1, 2020	64,033	7,733	22,169	$	971,380	$	(515,065)	$	267,094	$	(2,495)	$	720,914
Net loss	—	—	—	—		—		(314,072)		—		(314,072)
Stock-based compensation activity	545	—	—	9,369		—		—		—		9,369

Dividends ($0.10 per share)	—	—	—	—		—		(7,160)		—		(7,160)
Other comprehensive loss	—	—	—	—		—		—		(2,424)		(2,424)
Balance, August 1, 2020	64,578	7,733	22,169	$	980,749	$	(515,065)	$	(54,138)	$	(4,919)	$	406,627

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

DESIGNER BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)


	Six months ended
	July 31, 2021		August 1, 2020
Cash flows from operating activities:
Net income (loss)	$	59,886	$	(314,072)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	40,257		44,075
Stock-based compensation expense	13,365		10,596
Deferred income taxes	100		(152,988)
Income from equity investment	(3,998)		(4,423)
Distributions received from equity investment	7,447		5,493
Impairment charges	1,174		119,282
Gain on settlement	—		(8,990)
Other	800		403
Change in operating assets and liabilities:
Accounts receivable	5,859		30,699
Income tax receivable	(9,066)		—
Inventories	(30,114)		186,965
Prepaid expenses and other current assets	(612)		(847)
Accounts payable	53,009		(67,282)
Accrued expenses	21,546		26,693
Operating lease assets and liabilities, net	(63,424)		44,777
Net cash provided by (used in) operating activities	96,229		(79,619)
Cash flows from investing activities:
Cash paid for property and equipment	(13,189)		(22,141)

Sales of available-for-sale investments	—		24,755
Proceeds from settlement	—		4,166
Net cash provided by (used in) investing activities	(13,189)		6,780
Cash flows from financing activities:
Borrowing on revolving line under Credit Facility	—		251,000
Payments on revolving line under Credit Facility	—		(48,000)
Borrowing under ABL Revolver	342,053		—
Payments on borrowings under ABL Revolver	(425,243)		—

Payments on borrowings under Term Loan	(6,251)		—


Dividends paid	—		(7,160)
Other	(5,514)		(2,646)
Net cash provided by (used in) financing activities	(94,955)		193,194
Effect of exchange rate changes on cash balances	338		(199)
Net increase (decrease) in cash, cash equivalents and restricted cash	(11,577)		120,156
Cash, cash equivalents and restricted cash, beginning of period	59,581		86,564
Cash, cash equivalents and restricted cash, end of period	$	48,004	$	206,720
Supplemental disclosures of cash flow information:
Cash paid (received) for income taxes	$	(3,372)	$	165
Cash paid for interest on debt	$	13,437	$	5,606
Cash paid for operating lease liabilities	$	162,602	$	62,262
Non-cash investing and financing activities:
Property and equipment purchases not yet paid	$	2,320	$	1,981
Operating lease liabilities arising from lease asset additions	$	11,109	$	9,408
Net increase to operating lease assets and lease liabilities for modifications	$	45,723	$	23,195

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

Table of Contents

~~DSW~~DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. ~~BUSINESS OPERATIONS AND BASIS OF PRESENTATION~~SIGNIFICANT ACCOUNTING POLICIES

Business Operations- ~~DSW~~ Designer Brands Inc.~~, an Ohio corporation, together with its wholly-owned subsidiaries,~~ is ~~the destination for fabulous footwear brands~~one of North America's largest designers, producers and ~~accessories at a great value every single day. We offer a wide assortment~~retailers of ~~brand name dress, casual and athletic~~ footwear and ~~accessories for women, men and kids.~~accessories. We ~~conduct business~~operate in ~~two~~3 reportable segments: the U.S. Retail segment, the Canada Retail segment, and the Brand Portfolio segment. The U.S. Retail segment operates the DSW ~~segment~~Designer Shoe Warehouse ("DSW")~~, which includes DSW~~ banner through its U.S. stores and ~~dsw.com, and the Affiliated Business Group ("ABG") segment.~~

e-commerce site. The ~~ABG~~Canada Retail segment partners with three other retailers to help build and optimize their in-store and online footwear businesses. ABG supplies merchandise for the shoe departments of Stein Mart, Gordmans, and Frugal Fannie's. On March 13, 2017, Gordmans filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code and announced its plan to liquidate inventory and other assets. Stage Stores, Inc. acquired 58 of the Gordmans' stores and we have signed an agreement to provide services for these stores through the end of fiscal 2017.

We also have an equity investment in Town Shoes Limited ("Town Shoes"). Town Shoes is the market leader in Canada for the sale of branded footwear offered in stores and on e-commerce sites under the banners ofoperates The Shoe Company, Shoe Warehouse, ~~Town Shoes~~ and ~~DSW.~~

~~During fiscal 2016,~~DSW banners through its Canada stores and e-commerce sites. The Brand Portfolio segment earns revenue from the sale of wholesale products to retailers, commissions for serving retailers as the design and buying agent for products under private labels (which we ~~completed~~refer to as "First Cost"), and the sale of branded products through the direct-to-consumer e-commerce site at www.vincecamuto.com. An integral part of the Brand Portfolio segment is our equity investment in ABG-Camuto, LLC ("ABG-Camuto"), which is a partnership between Camuto LLC, a wholly-owned subsidiary doing business as "Camuto Group," and Authentic Brands Group LLC, a global brand management and marketing company. Camuto Group has a 40% stake in ABG-Camuto, a joint venture that owns several ~~transactions that supported~~intellectual property rights, including Vince Camuto, Louise et Cie, and others, and focuses on licensing and developing new category extensions to support the global growth of these brands. Camuto Group has a licensing agreement with ABG-Camuto whereby we pay royalties on our ~~efforts~~net sales from the brands owned by ABG-Camuto, subject to ~~grow market share within~~guaranteed minimums. Camuto Group also owns footwear and ~~accessories domestically~~certain handbag licensing rights of Jessica Simpson, Lucky Brand and, ~~internationally. On March 4, 2016, we acquired Ebuys, Inc. ("Ebuys"),~~through a ~~leading off price footwear~~joint venture, Jennifer Lopez. Our other operating segments are below the quantitative and ~~accessories retailer operating in digital marketplaces. Ebuys sells products to customers located in North America, Europe, Australia~~qualitative thresholds for reportable segments and Asia. On August 2, 2016, we signed an agreement with the Apparel Group as an exclusive franchise partner in the Gulf Coast region of the Middle East. Under this franchise agreement, the first two franchise stores opened during fiscal 2017.are aggregated into Other for segment reporting purposes.

Basis of Presentation- The accompanying unaudited, condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the ~~United States~~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 at January ~~28, 2017~~30, 2021 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 ~~our Annual Report on~~the 2020 Form ~~10-K for the fiscal year ended January 28, 2017, filed with the U.S. Securities and Exchange Commission on March 23, 2017.~~10-K.

Fiscal Year- Our fiscal year ends on the Saturday nearest to January 31. References to a fiscal year refer to the calendar year in which the fiscal year begins.

~~2. ACQUISITION AND EQUITY INVESTMENT~~

~~Acquisition of Ebuys-~~ On March 4, 2016, we acquired 100% ownership of Ebuys for cash and future amounts to be paid to the sellers of Ebuys contingent upon achievement of certain milestones. During fiscal 2016, we had purchase price adjustments based on working capital adjustments and measurement period adjustments of the contingent consideration liability, based on additional information about facts and circumstances that existed at the acquisition date that were obtained after that date. We also made various measurement period adjustments for the assets and liabilities acquired.

~~Table of Contents~~

~~DSW INC.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

(~~unaudited~~)

~~The preliminary and final purchase price and the allocation of the total consideration to the fair values of the assets and liabilities acquired consisted of the following:~~

Preliminary
Purchase Price
as of March 4, 2016
Adjustments
Final
Purchase Price
as of January 28, 2017
(in thousands)
Purchase price:
Cash consideration $ 60,411
$ (635 ) $ 59,776
Contingent consideration 56,000
(2,645 ) 53,355
$ 116,411
$ (3,280 ) $ 113,131
Fair value of assets and liabilities acquired:
Accounts and other receivables $ 1,623
$ (287 ) $ 1,336
Inventory 30,152
18
30,170
Other current assets 191
335
526
Property and equipment 1,221
22
1,243
Goodwill 54,785
(995 ) 53,790
Intangible assets 41,301
(2,600 ) 38,701
Accounts payable and other long-term liabilities (12,862 ) 227
(12,635 )
$ 116,411
$ (3,280 ) $ 113,131

The final fair value of intangible assets includes $22.3 million for online retailer and customer relationships based on using the excess earnings method, $11.0 million for tradenames based on using the relief from royalty method, and $5.4 million for non-compete agreements based on using the with-and-without method. The categorization of the fair value framework used for these methods are considered Level 3 due to the subjective nature of the unobservable inputs used to determine the fair value.

The goodwill represents the intangible assets that do not qualify for separate recognition and is primarily the result of expected synergies, vertical integration as a market for selling aged inventory, online presence, and the acquired workforce. Goodwill related to this acquisition is deductible for income tax purposes.

~~Equity Investment in Town Shoes-~~ In May 2014, we acquired a 49.2% interest in Town Shoes for $75.1 million Canadian dollars ("CAD") ($68.9 million United States dollars ("USD")), which included the purchase of an unsecured subordinated note from Town Shoes issued on February 14, 2012 that earns payment-in-kind interest at 12% and matures on February 14, 2022. As of October 28, 2017, our ownership percentage was 46.3%. The dilution of our ownership is due to Town Shoes' employee exercise of stock options. Our ownership stake provides 50% voting control and board representation equal to the co-investor.

Additionally, the Town Shoes co-investor holds a put option to sell the remaining interest in Town Shoes in fiscal 2017 to the Company and for the subsequent two years. We hold a call option to purchase the remaining interest in Town Shoes in fiscal 2018, and for the subsequent two years, if the Town Shoes co-investor has not exercised their put option. During fiscal 2015, we invested $100 million CAD in available-for-sale securities denominated in CAD in anticipation of funding the future purchase of the remaining interest in Town Shoes. As of October 28, 2017, these available-for-sale securities are classified as short-term investments based on management's intent to exercise the call option to purchase the remaining interest in Town Shoes in the first half of fiscal 2018.

~~3. 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 ~~Annual Report~~2020 Form 10-K.

Impact of COVID-19- In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. On March 18, 2020, to help control the spread of the virus and protect the health and safety of our customers, employees, and the communities we serve, we temporarily closed all of our stores in the U.S. and Canada. In addition, we took several actions in late March 2020 to reduce costs and operations to levels that were more commensurate with then-current sales, including furloughs and pay reductions. As this continues to be an unprecedented period of uncertainty, we have made and may continue to make adjustments to our operational plans, inventory controls, and liquidity management, as well as changes to our expense and capital expenditure plans.

During the second quarter and into the third quarter of fiscal 2020, we re-opened all of our stores, discontinued the furlough program, and restored pay for our associates that had taken pay reductions. Beginning in July 2020, we initiated an internal reorganization and reduction of our workforce with additional actions taken throughout fiscal 2020 and into the first quarter of fiscal 2021, resulting in the elimination of approximately 1,000 associate positions. The severance charges recorded as a result of this reorganization are included in our severance discussion below.

Although operating results have improved throughout the first half of fiscal 2021, we continue to experience adverse impacts due to COVID-19, including temporary store closures, reduced hours and other requirements in certain areas where government-imposed restrictions were mandated, and global supply chain challenges. Our retail customers in the Brand Portfolio segment have had and are having similar experiences.

Table of Contents

DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

As a result of the material reduction in net sales and cash flows during fiscal 2020, we updated our impairment analyses for our U.S. Retail and Canada Retail segments at the store-level, which represents the lowest level for which identifiable cash flows are independent of the cash flows of other assets. The carrying amount of the store asset group, primarily made up of operating lease assets, leasehold improvements and fixtures, is considered impaired when the carrying value of the asset group exceeds the expected future cash flows from the asset group. The impairment loss recognized is the excess of the carrying value of the asset or asset group over its fair value (categorized as Level 3 under the fair value hierarchy). Fair value at the store level is typically based on ~~Form 10-K~~projected discounted cash flows over the remaining lease term. In addition, we evaluated other long-lived assets based on our intent to use such assets going forward. During the three months ended August 1, 2020, we recorded an impairment charge of $6.7 million for the U.S. Retail segment. During the six months ended August 1, 2020, we recorded impairment charges of $92.8 million ($73.1 million and $19.7 million for the U.S. Retail segment and Canada Retail segment, respectively). Also during the six months ended August 1, 2020, we recorded an impairment charge of $6.5 million for the Brand Portfolio segment customer relationship intangible resulting in a full impairment due to the lack of projected cash flows over the remaining useful life (categorized as Level 3 under the fair value hierarchy).

As a result of the material reduction in net sales and cash flows due to the temporary closure of all of our stores, the decrease in net sales from our retailer customers and the decrease in the Company's market capitalization due to the impact of COVID-19 on macroeconomic conditions, we performed an impairment analysis for goodwill and other indefinite-lived intangible assets during the first quarter of fiscal 2020. We calculated the fair value of the reporting units with goodwill primarily based on a discounted cash flow analysis (categorized as Level 3 under the fair value hierarchy). Our analysis concluded that the fair value of the First Cost reporting unit within the Brand Portfolio segment did not exceed its carrying value. Accordingly, during the six months ended August 1, 2020, we recorded an impairment charge of $20.0 million for the First Cost reporting unit in the Brand Portfolio segment, resulting in a full impairment.

The U.S. Retail segment inventory is accounted for using the retail inventory method and is stated at the lower of cost or market. Under the retail inventory method, the valuation of inventories reflects reductions for merchandise marked down with charges to cost of sales. As a result, earnings are negatively impacted as the merchandise is marked down prior to sale. Inventories for the Canada Retail and Brand Portfolio segments are accounted for using moving average cost method and are stated at the lower of cost or net realizable value. For all inventories, we also monitored excess and obsolete inventories in light of the temporary closure of stores during our fiscal 2020 peak spring selling season and reduced traffic experienced since re-opening stores. During the six months ended August 1, 2020, we recorded $64.0 million of additional inventory reserves over the same period of the previous year.

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which, among other things, provided employer payroll tax credits for wages paid to employees who were unable to work over a defined period and options to defer payroll tax payments. Based on our evaluation of the CARES Act, we qualified for certain employer payroll tax credits, which were treated as government subsidies to offset related operating expenses, as well as the deferral of payroll and other tax payments in the future. Similar credits were also available in Canada and continue to be provided. During the three months ended July 31, 2021 and August 1, 2020, the qualified government credits reduced our operating expenses by $1.0 million and $3.5 million, respectively, on our condensed consolidated statements of operations. During the six months ended July 31, 2021 and August 1, 2020, the qualified government credits reduced our operating expenses by $3.7 million and $7.9 million, respectively, on our condensed consolidated statements of operations. As of July 31, 2021, we had $10.0 million of deferred qualified payroll and other tax obligations, half of which is included in accrued expenses on the condensed consolidated balance sheets that we expect to pay at the end of fiscal 2021, with the remaining included in other non-current liabilities on the condensed consolidated balance sheets that we expect to pay at the end of fiscal 2022.

We recorded our income tax expense, income tax receivable, and deferred tax assets and related liabilities based on management’s best estimates. Additionally, we assessed the likelihood of realizing the benefits of our deferred tax assets. Our ability to recover these deferred tax assets depends on several factors, including our ability to project future taxable income. One of the provisions of the CARES Act allows net operating losses generated within tax years 2018 through 2020 to be carried back up to five years, including years in which the U.S. federal statutory tax rate was 35%, as opposed to the current rate of 21%. In evaluating future taxable income, significant weight is given to positive and negative evidence that is objectively verifiable. As a result of the losses incurred in fiscal 2020 due to COVID-19, we are in a three-year cumulative loss position as of July 31, 2021, which is significant objective negative evidence in considering whether deferred tax assets are realizable. Such objective evidence limits the ability to consider other subjective evidence, such as the projection of future taxable income. A valuation allowance has been recognized as a reserve on the total deferred tax asset balance due to the uncertainty of realization of our loss carry forwards and other deferred tax assets. Our effective tax rate changed from 32.5% for the six months ended

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DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

August 1, 2020 to 3.6% for the six months ended July 31, 2021. The rate for the six months ended July 31, 2021 is the result of maintaining a full valuation allowance on deferred tax assets while also recording net discrete tax benefits, primarily as a result of adjustments to our estimated fiscal 2020 return reflecting implemented tax strategies. The rate for the six months ended August 1, 2020 is the result of carry back of losses to a tax year where the U.S. federal statutory tax rate was 35%.

The impacts from the COVID-19 pandemic remain challenging and unpredictable. While trends improved during the first half of fiscal 2021, we cannot reasonably estimate the extent to which our business will continue to be affected by COVID-19 and to what extent the recent improved trends will continue. For instance, restrictions have recently been reinstated in certain locations within the U.S., and it is unclear whether these restrictions will continue and expand or if COVID-19 will result in long-term changes in consumer behavior. The ongoing and prolonged nature of the outbreak may lead to further adjustments to our operations. As such, the ultimate impacts of COVID-19 to our businesses remain highly uncertain and will depend on future developments, including global supply chain disruptions, the variants of COVID-19, and the global availability and use of vaccines, which are highly uncertain and cannot be predicted. As a result, we may have future write-downs or adjustments to inventories, receivables, long-lived assets, intangibles, goodwill, and the valuation allowance on deferred tax assets.

Severance- During the three months ended July 31, 2021 and August 1, 2020, we incurred severance costs of $1.2 million and $7.3 million, respectively. During the six months ended July 31, 2021 and August 1, 2020, we incurred severance costs of $2.6 million and $9.0 million, respectively. These costs are included in operating expenses in the condensed consolidated statements of operations. As of July 31, 2021, January ~~28, 2017.~~30, 2021 and August 1, 2020, we had accrued severance of $4.9 million, $6.5 million and $8.4 million, respectively, included in accrued expenses on the condensed consolidated balance sheets.

Gain on Settlement- During the three months ended August 1, 2020, we recognized a gain of $9.0 million, recorded to operating expenses in the condensed consolidated statements of operations, due to a settlement with a vendor for costs incurred on internal-use software that was capitalized and impaired in a previous fiscal year. During the three months ended August 1, 2020, we collected $4.2 million, net of legal costs incurred, and recorded a $4.8 million receivable included in receivables, net, on the condensed consolidated balance sheets, which has been subsequently received.

Principles of Consolidation- The condensed consolidated financial statements include the accounts of ~~DSW~~Designer Brands Inc. and its ~~wholly-owned subsidiaries.~~subsidiaries, including variable interest entities. All intercompany accounts and transactions have been eliminated in consolidation. All amounts are in ~~USD, unless otherwise noted.~~U.S. dollars.

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~~DSW INC.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

(~~unaudited~~)

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 ~~date~~dates of the financial statements and reported amounts of ~~revenues~~net sales and expenses during the reporting ~~period.~~periods. Certain estimates and assumptions use forecasted financial information based on information reasonably available to us, along with the estimated, but uncertain, future impacts of COVID-19. Significant estimates and assumptions are required as a part of accounting for sales returns allowances, customer allowances and discounts, gift card breakage income, deferred revenue associated with loyalty programs, valuation of inventories, depreciation and amortization, ~~inventory valuation, contingent consideration liability, customer loyalty program reserve, recoverability~~impairments of long-lived assets, intangibles and ~~intangible assets, legal reserves, accrual for~~goodwill, lease ~~obligations~~accounting, income taxes, and ~~establishing reserves for self-insurance.~~self-insurance reserves. Although we believe these estimates and assumptions are reasonable, they are based on management's knowledge of current events and actions itwe may undertake in the ~~future,~~future. Changes in facts and circumstances may result in revised estimates and assumptions, and actual results could differ from these estimates.

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 ~~represents~~represented cash that is restricted as to withdrawal or usage and ~~consisted~~consists of a mandatory cash deposit maintained for ~~outstanding letters of credit under our previous credit facility.~~certain insurance policies.

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 in the condensed consolidated statements of cash flows:


(in thousands)	July 31, 2021		January 30, 2021		August 1, 2020
Cash and cash equivalents	$	46,458	$	59,581	$	206,720
Restricted cash, included in prepaid expenses and other current assets	1,546		—		—
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	48,004	$	59,581	$	206,720

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DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

October 28, 2017 January 28, 2017 October 29, 2016
(in thousands)
Cash and cash equivalents $ 149,485
$ 110,657
$ 60,962
Restricted cash, included in prepaid expenses and other current assets —
4,654
5,269
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows $ 149,485
$ 115,311
$ 66,231

Fair Value- Fair value is defined as the price that would be received ~~to sell~~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.

~~Impairment~~The carrying value of ~~Long-Lived Assets-~~ ~~We periodically evaluate~~cash and cash equivalents, restricted cash, receivables, and accounts payables approximated their fair values due to their short-term nature. The carrying value of borrowing under our ABL Revolver and our previous senior unsecured revolving credit agreement ("Credit Facility") approximated the carrying ~~amount~~value. As of July 31, 2021, the fair value of borrowings under our ~~long-lived assets, primarily property and equipment and definite-lived intangible assets, when events and circumstances warrant such a review~~Term Loan was $250.2 million compared to ~~ascertain if any assets have been impaired. The carrying amount of a long-lived asset or asset group is considered impaired when~~ the carrying value of the asset or asset group exceeds the expected future cash flows from the asset or asset group. The reviews are conducted at the lowest identifiable level. The impairment loss recognized is the excess of the carrying$237.5 million. The fair value of debt borrowings was estimated based on current interest rates offered for similar instruments (categorized as Level 2 under the ~~asset or asset group over its~~ fair ~~value.~~value hierarchy).

~~Due~~Impairment of Long-Lived Assets- Refer to ~~recurring operating losses incurred by Ebuys since its acquisition as well as increased competitive pressures in the digital marketplaces, we revised our growth expectations assumed at the time~~section above, Impact of ~~the acquisition and have moderated future expectations for the business. As a result,~~COVID-19, regarding impairment charges of long-lived assets during fiscal 2020. During the three months ended ~~October 28, 2017,~~July 31, 2021, we ~~undertook a review~~recorded an impairment charge of ~~the carrying amount of Ebuys’ intangible assets and recorded intangible assets impairment charges of $28.9~~$1.2 million in the ~~accompanying condensed consolidated statements~~U.S. Retail segment for abandoned equipment we are replacing.

2. REVENUE

Disaggregation of ~~operations.~~Net Sales- The following table presents net sales disaggregated by product and service category for each segment:


	Three months ended				Six months ended
(in thousands)	July 31, 2021		August 1, 2020		July 31, 2021		August 1, 2020
Net sales:
U.S. Retail segment:
Women's footwear	$	467,518	$	253,539	$	872,818	$	513,102
Men's footwear	168,218		85,012		300,165		155,367
Kids' footwear	54,112		32,232		108,844		61,415
Accessories and other	33,245		23,194		61,924		41,166
	723,093		393,977		1,343,751		771,050
Canada Retail segment:
Women's footwear	30,230		25,329		50,661		41,301
Men's footwear	15,805		13,970		25,333		20,773
Kids' footwear	9,554		8,231		19,067		13,787
Accessories and other	1,996		2,052		3,128		3,050
	57,585		49,582		98,189		78,911
Brand Portfolio segment:
Wholesale	42,715		15,563		91,358		82,867
Commission income	2,377		5,018		5,708		10,141
Direct-to-consumer	5,437		9,877		10,890		19,563
	50,529		30,458		107,956		112,571
Other	—		22,266		—		35,889
Total segment net sales	831,207		496,283		1,549,896		998,421
Elimination of intersegment sales	(13,872)		(6,569)		(29,406)		(25,924)
Total net sales	$	817,335	$	489,714	$	1,520,490	$	972,497

~~Goodwill-~~ We evaluate goodwill for impairment annually during our fourth quarter, or more frequently if an event occurs or circumstances change, such as material deterioration in performance or a significant and sustained decline in our stock price, that would indicate that impairment may exist. When evaluating goodwill for impairment, we may first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If we do not perform a qualitative assessment, or if we determine that it is more likely than not that the carrying value of the reporting unit exceeds its fair value, we will calculate the estimated fair value of the reporting unit. Fair value is the price a willing buyer would pay for the reporting unit and is typically calculated using a discounted cash flow analysis. For certain reporting units, where deemed appropriate, we may also utilize a market approach for estimating fair value.

~~In the third quarter of fiscal 2017, we early adopted the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2017-04,~~ ~~Simplifying the Accounting for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating the requirement to determine the implied fair value of goodwill to measure an impairment of~~

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~goodwill. Rather, goodwill impairment charges are calculated as~~Deferred Revenue Liabilities- We record deferred revenue liabilities, included in accrued expenses on the ~~amount by which a reporting unit's carrying amount exceeds its fair value.~~

Due to recurring operating losses incurred by Ebuys since its acquisition as well as increased competitive pressures in the digital marketplaces, we revised our growth expectations assumed at the time of the acquisition and have moderated future expectationscondensed consolidated balance sheets, for the business. As a result, during the three months ended October 28, 2017, we undertook a review of the carrying amount of Ebuys, which included goodwill and reflected the impact of the intangible assets impairment charges. We utilized a discounted cash flow analysis to determine the implied fair value of Ebuys, which was then compared with its carrying value, resulting in a goodwill impairment charge of $53.8 million.

~~Share Repurchase Program-~~ On ~~August 17, 2017, the Board of Directors authorized the repurchase of an~~ ~~additional~~ ~~$500 million of DSW Common Shares under our share repurchase program, which was added to the $33.5 million~~ remaining ~~from the previous authorization.~~ During the nine months ended October 28, 2017, we repurchased 0.5 million Class A Common Shares at a cost of $9.4 million, with $524.1 million of Class A Common Shares that remain authorized under the program. The share repurchase program may be suspended, modified or discontinued at any time, andobligations we have ~~no obligation~~ to ~~repurchase any amount of~~ our ~~common shares under the program. Shares will be repurchased in the open market at times and in amounts considered appropriate based on price and market conditions.~~

~~Accumulated Other Comprehensive Income (Loss)-~~ ~~Changes for the balances of each component of accumulated other comprehensive loss were as follows (all amounts are net of tax):~~

Nine months ended
October 28, 2017 October 29, 2016
Foreign Currency Translation Available-for-Sale Securities Total Foreign Currency Translation Available-for-Sale Securities Total
(in thousands)
Accumulated other comprehensive loss - beginning of period $ (13,699 ) $ (242 ) $ (13,941 ) $ (20,530 ) $ (173 ) $ (20,703 )
Other comprehensive income (loss) before reclassifications (806 ) (149 ) (955 ) 4,709
103
4,812
Amounts reclassified to non-operating income 2,186
(105 ) 2,081
—
—
—
Other comprehensive income (loss) 1,380
(254 ) 1,126
4,709
103
4,812
Accumulated other comprehensive loss - end of period $ (12,319 ) $ (496 ) $ (12,815 ) $ (15,821 ) $ (70 ) $ (15,891 )

~~Adopted Accounting Standards-~~ ~~In the first quarter of fiscal 2017, we adopted ASU 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting~~, which eliminated the requirement to recognize excess tax benefits in common shares paid-in capital and the requirement to evaluate tax deficiencies for common shares paid-in capital or income tax expense classification, and provides for these benefits or deficiencies to be recorded as an income tax expense or benefit on a prospective basis. For the consolidated statements of cash flows, excess tax benefits related to stock-based compensation is no longer presented, on a retroactive basis, as a financing activity cash inflow and as an operating activity cash outflow.

~~In the first quarter of fiscal 2017, we early adopted ASU 2016-18,~~ ~~Statement of Cash Flows - Restricted Cash,~~ ~~which requires that the consolidated statements of cash flows provides the change in the total of cash, cash equivalents, and restricted cash. As a result of this adoption, we no longer show~~customers. The following table presents the changes ~~in restricted cash balance as a component of cash flows from investing activities but instead include the balance of restricted cash together with cash~~ and ~~cash equivalents~~total balances for ~~the beginning and end of the periods presented.~~

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~~DSW INC.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

(~~unaudited~~)

~~As a result of adopting ASU 2016-09 and ASU 2016-18, we adjusted the statements of cash flows on a retroactive basis as follows:~~

Nine Months Ended
October 29, 2016
(in thousands)
Net cash provided by operating activities, as previously reported $ 110,635
Eliminated the excess tax benefits related to stock-based compensation 124
Net cash provided by operating activities, as adjusted $ 110,759
Net cash provided by investing activities, as previously reported $ 8,310
Eliminated the decrease in restricted cash (2,407 )
Net cash provided by investing activities, as adjusted $ 5,903
Net cash used in financing activities, as previously reported $ (90,478 )
Eliminated the excess tax benefits related to stock-based compensation (124 )
Net cash used in financing activities, as adjusted $ (90,602 )
Net increase in cash and cash equivalents, as previously reported $ 28,467
Eliminated the impact of the decrease in restricted cash (2,407 )
Net increase in cash, cash equivalents, and restricted cash, as adjusted $ 26,060
Cash and cash equivalents, beginning of period, as previously reported $ 32,495
Included restricted cash 7,676
Cash, cash equivalents, and restricted cash, beginning of period, as adjusted $ 40,171
Cash and cash equivalents, end of period, as previously reported $ 60,962
Included restricted cash 5,269
Cash, cash equivalents, and restricted cash, end of period, as adjusted $ 66,231

~~Recent Accounting Pronouncements-~~ ~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers~~, which provides a single comprehensive accounting standard for revenue recognition for contracts with customers and supersedes current guidance. Under ASU 2014-09, companies will recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the payment to which a company expects to be entitled in exchange for those goods or services. The standard also will require enhanced disclosures and provide more comprehensive guidance for transactions such as service revenue and contract modifications. The standard is effective for us in the first quarter of fiscal 2018, which we plan to adopt using the full retrospective method where each prior period presented is restated. We have completed an assessment identifying areas of impact to our financial statements, including sales returns, licensing arrangements, gift cards and our loyalty and co-branded credit card programs. The adoption of the new standard will result in changes in classification between net sales, other revenues, cost of sales, and operating expenses. For income from breakage of gift cards, which is currently recognized as a reduction to operating expenses when the redemption of the gift card is deemed remote, the new standard will require classification within net sales recognized proportionately over the expected redemption period. Also upon adoption of the standard, we will no longer use the incremental cost method and record to cost of sales for our loyalty program, rather we will use a deferred revenue model. We do not expect the adoption of ASU 2014-09 will have a material impact to our reported net sales, operating profit, net income, shareholders’ equity or cash flows, with the primary impacts of adopting the new standard relating to changes in classification of amounts shown on the consolidated financial statements and additional disclosures.programs:


	Three months ended				Six months ended
(in thousands)	July 31, 2021		August 1, 2020		July 31, 2021		August 1, 2020
Gift cards:
Beginning of period	$	30,809	$	30,908	$	34,442	$	35,461
Gift cards redeemed and breakage recognized to net sales	(19,210)		(11,343)		(36,380)		(24,868)
Gift cards issued	17,092		10,354		30,629		19,326
End of period	$	28,691	$	29,919	$	28,691	$	29,919
Loyalty programs:
Beginning of period	$	12,955	$	14,568	$	11,379	$	16,138
Loyalty certificates redeemed and expired and other adjustments recognized to net sales	(6,008)		(4,277)		(10,904)		(10,886)
Deferred revenue for loyalty points issued	8,308		4,506		14,780		9,545
End of period	$	15,255	$	14,797	$	15,255	$	14,797

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases~~, which will change how lessees account for leases. For most leases, a liability will be recorded on the balance sheet based on the present value of future lease obligations with a corresponding right-of-use asset. Primarily for those leases currently classified by us as operating leases, we will recognize a single lease cost on a straight line basis based on the combined amortization of the lease obligation and the right-of-use asset. Other leases will be required to be accounted for as financing arrangements similar to current accounting for capital leases. Upon transition, we will recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The standard is effective for us in the first quarter of fiscal 2019 with early adoption permitted. We will not early adopt ASU

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~~DSW INC.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

(~~unaudited~~)

2016-02 and we expect the standard will have a material impact to our consolidated balance sheets. We are continuing to assess and evaluate the full impact of the standard on our financial statements and we are developing an implementation plan.

4.3. RELATED PARTY TRANSACTIONS

Accounts receivable, accounts payable, and prepaid expenses associated with related parties are separately presented on the consolidated balance sheets. Accounts receivable from and payables to related parties normally settle in the form of cash in 30 to 60 days.

Schottenstein Affiliates

As of ~~October 28, 2017,~~July 31, 2021, the Schottenstein Affiliates consist of entities owned or controlled by Jay L. Schottenstein, the executive chairman of our Board of Directors, and members of his ~~family, beneficially owned approximately 18% of the Company's outstanding Common Shares, representing approximately 51% of the combined voting power.~~family. As of ~~October 28, 2017,~~July 31, 2021, the Schottenstein Affiliates beneficially owned ~~7.1~~approximately 17% of the Company's outstanding common shares, representing approximately 52% of the combined voting power, consisting of, in the aggregate, 4.8 million Class A ~~Common Shares~~common shares and 7.7 million Class B ~~Common Shares.~~common shares. The following summarizes the related party transactions with the Schottenstein Affiliates for the relevant periods:

~~Leases with Related Parties-~~ Leases- We lease our fulfillment center and certain store locations owned by the Schottenstein Affiliates. During the three months ended ~~October 28, 2017~~July 31, 2021 and ~~October 29, 2016,~~August 1, 2020, we recorded rent expense from leases with Schottenstein Affiliates of ~~$2.2~~$2.7 million and ~~$2.0~~$2.6 million ~~respectively.~~, respectively. During the ~~nine~~six months ended ~~October 28, 2017~~July 31, 2021 and ~~October 29, 2016,~~August 1, 2020, we recorded rent expense from leases with Schottenstein Affiliates of ~~$6.8~~$5.4 million and ~~$6.1~~$5.3 million, respectively. As of July 31, 2021, January 30, 2021 and August 1, 2020, we had related party current operating lease liabilities of $6.4 million, $8.0 million and $7.9 million, respectively, and non-current operating lease liabilities of $21.3 million, $24.6 million and $28.5 million, respectively.

~~Basis Difference Related to Acquisition of Commonly Controlled Entity-~~ The basis difference related to acquisition of commonly controlled entity balance, as shown on our consolidated balance sheets, relates to a legal entity acquisition in fiscal 2012 from certain Schottenstein affiliates. The legal entity owned property that was previously leased by us. As this was a transaction between entities under common control, there was no adjustment to the historical cost carrying amounts of assets transferred to the Company. The difference between the historical cost carrying amounts and the consideration transferred was reflected as an equity transaction.

Other Purchases and Services-During the three months ended ~~October 28, 2017~~July 31, 2021 and ~~October 29, 2016,~~August 1, 2020, we had other purchases and services we incurred from the Schottenstein Affiliates of ~~$0.3~~$1.1 million and ~~$0.4~~$1.2 million, respectively. During both the ~~nine~~six months ended ~~October 28, 2017~~July 31, 2021 and ~~October 29, 2016,~~August 1, 2020, we had other purchases and services we incurred from the Schottenstein Affiliates of ~~$0.9 million and $0.9 million, respectively.~~$2.5 million.

~~Town Shoes~~Due to Related Parties-Amounts due to Schottenstein Affiliates, other than operating lease liabilities, were immaterial for all periods presented.

As of October 28, 2017, our ownership percentage in Town Shoes was 46.3%, which provides us a 50% voting control and board representation equal to the co-investor, and is treated as an equity investment.ABG-Camuto

~~Management Agreement-~~ We have a ~~management~~40% interest in our equity investment in ABG-Camuto. We have a licensing agreement with ~~Town Shoes under~~ABG-Camuto, pursuant to which we ~~provide certain information technology and management services.~~pay royalties on the net sales of the brands owned by ABG-Camuto, subject to guaranteed minimums. During both the three months ended ~~October 28, 2017~~July 31, 2021 and ~~October 29, 2016,~~August 1, 2020, we ~~recognized income~~recorded royalty expense for amounts paid to ABG-Camuto of ~~$0.3~~$4.6 million. During the six months ended July 31, 2021 and August 1, 2020, we recorded royalty expense for amounts paid to ABG-Camuto of $9.2 million and ~~$0.4~~$9.0 million, respectively. ~~During the nine months ended October 28, 2017 and October 29, 2016, we recognized income of $0.9 million and $0.4 million, respectively.~~

~~License Agreement-~~ ~~We license the use of our tradename and trademark, DSW Designer Shoe Warehouse,~~Amounts due to ~~Town Shoes~~ABG-Camuto were immaterial for a royalty fee based on a percentage of net sales from its Canadian DSW stores, which are included in net sales. The license is exclusive and non-transferable for use in Canada. During the three months ended October 28, 2017 and October 29, 2016, we recognized royalty income of $0.2 million and $0.2 million, respectively. During the nine months ended October 28, 2017 and October 29, 2016, we recognized royalty income of $0.5 million and $0.4 million, respectively.

~~Other Purchases and Services-~~ During the three and nine months ended October 28, 2017, Town had other purchases and services from us of $0.3 million and $1.9 million, respectively. During the three and nine months ended October 29, 2016, no other purchases and services were provided.

all periods presented.

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~~DSW~~DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~David Duong, Co-founder of Ebuys~~

On ~~March 4, 2016~~, we acquired 100% ownership of Ebuys from its co-founders, including David Duong, who continues to serve on the board of directors of Ebuys, for cash and future amounts to be paid to the co-founders contingent upon achievement of certain milestones. See Note 13, ~~Commitments and Contingencies, for the estimated fair value of the contingent consideration liability and changes recognized. Mr. Duong will receive 50% of any future payments of the contingent consideration.~~

5.4. EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is based on net income (loss) and the weighted average of Class A and Class B ~~Common Shares~~common shares outstanding. Diluted earnings per share reflects the potential dilution of common shares adjusted for outstanding stock options and restricted stock units ("RSUs"~~), and performance-based restricted stock units ("PSUs"~~) calculated using the treasury stock method.

The following is a reconciliation ~~of the number of~~between basic and diluted weighted average shares outstanding, as used in the calculation of earnings (loss) per share:


	Three months ended		Six months ended
(in thousands)	July 31, 2021	August 1, 2020	July 31, 2021	August 1, 2020
Weighted average basic shares outstanding	72,932	72,142	72,773	72,028
Dilutive effect of stock-based compensation awards	4,687	—	4,498	—
Weighted average diluted shares outstanding	77,619	72,142	77,271	72,028

Three months ended Nine months ended
October 28, 2017 October 29, 2016 October 28, 2017 October 29, 2016
(in thousands)
Weighted average shares outstanding - Basic shares 80,112
82,026
80,215
82,011
Dilutive effect of stock-based compensation awards 535
511
484
632
Weighted average shares outstanding - Diluted shares 80,647
82,537
80,699
82,643

For the three months ended ~~October 28, 2017~~July 31, 2021 and ~~October 29, 2016,~~August 1, 2020, the number of ~~potential~~ shares relating to potentially dilutive stock-based compensation awards that were ~~not included in~~excluded from the computation of diluted earnings (loss) per share ~~because the~~due to their anti-dilutive effect ~~would be anti-dilutive~~ was ~~4.5~~2.9 million and ~~3.1~~5.9 million, respectively. For the ~~nine~~six months ended ~~October 28, 2017~~July 31, 2021 and ~~October 29, 2016,~~August 1, 2020, the number of ~~potential~~ shares relating to potentially dilutive stock-based compensation awards that were ~~not included in~~excluded from the computation of diluted earnings (loss) per share ~~because the~~due to their anti-dilutive effect ~~would be anti-dilutive~~ was ~~4.4~~3.0 million and ~~3.3~~5.5 million, respectively.

6.5. STOCK-BASED COMPENSATION

Stock-based compensation expense consisted of the following:


	Three months ended				Six months ended
(in thousands)	July 31, 2021		August 1, 2020		July 31, 2021		August 1, 2020
Stock options	$	132	$	407	$	385	$	870
Restricted and director stock units	5,776		5,272		12,980		9,726
	$	5,908	$	5,679	$	13,365	$	10,596

The following table summarizes the stock-based compensation award activity for RSUs for the six months ended July 31, 2021:


	Number of shares
(in thousands)	Time-Based RSUs	Performance-Based RSUs
Outstanding - beginning of period	6,445	540
Granted	1,033	—
Vested	(512)	(359)
Forfeited	(225)	(17)
Outstanding - end of period	6,741	164

6. SHAREHOLDERS' EQUITY

Three months ended Nine months ended
October 28, 2017 October 29, 2016 October 28, 2017 October 29, 2016
(in thousands)
Stock options $ 1,467
$ 1,313
$ 4,804
$ 4,538
Restricted stock units 809
782
2,294
2,651
Performance-based restricted stock units 1,022
547
2,969
1,779
Director stock units ("DSUs") 190
198
1,272
1,188
$ 3,488
$ 2,840
$ 11,339
$ 10,156

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 exchanged for 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 1 vote per share and holders of Class B common shares are entitled to 8 votes per share on matters submitted to shareholders for approval.

Table of Contents

~~DSW~~DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~The fair value for stock option awards was estimated at the grant date using the Black-Scholes pricing model with the following weighted average assumptions for the options granted:~~

Nine months ended
October 28, 2017 October 29, 2016
Assumptions:
Risk-free interest rate 1.9% 1.5%
Expected volatility 34.4% 36.0%
Expected option term 5.5 years 5.4 years
Dividend yield 3.9% 3.0%
Other data:
Weighted average grant date fair value $4.17 $6.59

The following table ~~summarizes the stock-based compensation award activity:~~provides additional information for our common shares:


	July 31, 2021		January 30, 2021		August 1, 2020
(in thousands)	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	87,405	7,733	86,835	7,733	86,747	7,733
Outstanding shares	65,236	7,733	64,666	7,733	64,578	7,733
Treasury shares	22,169	—	22,169	—	22,169	—

Nine months ended October 28, 2017
Stock Options RSUs PSUs DSUs
(in thousands)
Outstanding - beginning of period 3,799
351
250
311
Granted 1,756
292
263
85
Exercised / vested (151 ) (82 ) (50 ) (46 )
Forfeited / expired (426 ) (85 ) (5 ) —
Outstanding - end of period 4,978
476
458
350

~~As of October 28, 2017, 4.7~~We have authorized 100 million shares of ~~Class A Common Shares remain available~~no par value preferred shares, with no shares issued for ~~future stock-based compensation grants under~~any of the ~~2014 Long-Term Incentive Plan.~~periods presented.

Accumulated Other Comprehensive Loss- For the six months ended August 1, 2020, changes for the balances of each component of accumulated other comprehensive loss, net of tax, were as follows (for all other periods presented, the change was due to foreign currency translation adjustments as shown in the condensed consolidated statements of shareholders' equity):


(in thousands)	Foreign Currency Translation		Available-for-Sale Securities		Total
Accumulated other comprehensive income (loss) - beginning of period	$	(2,668)	$	173	$	(2,495)
Other comprehensive income (loss) before reclassifications	(2,251)		195		(2,056)
Amounts reclassified to non-operating income, net	—		(368)		(368)
Other comprehensive loss	(2,251)		(173)		(2,424)
Accumulated other comprehensive loss - end of period	$	(4,919)	$	—	$	(4,919)

7. ~~INVESTMENTS~~RECEIVABLES

~~We hold available-for-sale investments primarily in bonds and term notes. Investments~~Receivables, net, consisted of the following:


(in thousands)	July 31, 2021		January 30, 2021		August 1, 2020
Customer accounts receivables:
Serviced by third-party provider with guaranteed payment	$	27,638	$	29,615	$	20,268
Serviced by third-party provider without guaranteed payment	76		363		739
Serviced in-house	2,665		4,576		6,248
Income tax receivable	158,890		149,824		—
Other receivables	11,295		12,865		23,973
Total receivables	200,564		197,243		51,228
Allowance for doubtful accounts	(1,193)		(1,194)		(1,988)
	$	199,371	$	196,049	$	49,240

Short-term Investments Long-term Investments
October 28, 2017 January 28, 2017 October 29, 2016 October 28, 2017 January 28, 2017 October 29, 2016
(in thousands)
Available-for-sale investments:
Carrying value $ 180,531
$ 98,793
$ 78,497
$ —
$ 77,882
$ 76,206
Unrealized gains included in accumulated other comprehensive loss 47
101
156
—
133
29
Unrealized losses included in accumulated other comprehensive loss (512 ) (364 ) (141 ) —
(111 ) (109 )
Total investments $ 180,066
$ 98,530
$ 78,512
$ —
$ 77,904
$ 76,126

Table of Contents

~~DSW~~DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

8. ~~FAIR VALUE MEASUREMENTS~~GOODWILL AND INTANGIBLE ASSETS

~~Financial Assets and Liabilities-Financial~~Goodwill- The following table presents the changes to goodwill by segment:


	Six months ended
	July 31, 2021						August 1, 2020
(in thousands)	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	43,086		(43,086)		—		41,610		(41,610)		—
Brand Portfolio	19,989		(19,989)		—		19,989		—		19,989
	156,730		(63,075)		93,655		155,254		(41,610)		113,644
Activity by segment:


Canada Retail-
Currency translation adjustment	1,098		(1,098)		—		(534)		534		—
Brand Portfolio-
Impairment charge	—		—		—		—		(19,989)		(19,989)


	1,098		(1,098)		—		(534)		(19,455)		(19,989)
End of period by segment:
U.S. Retail	93,655		—		93,655		93,655		—		93,655
Canada Retail	44,184		(44,184)		—		41,076		(41,076)		—
Brand Portfolio	19,989		(19,989)		—		19,989		(19,989)		—
	$	157,828	$	(64,173)	$	93,655	$	154,720	$	(61,065)	$	93,655

Intangible Assets- Intangible assets ~~and liabilities measured at fair value on a recurring basis~~ consisted of the following:


(in thousands)	Cost		Accumulated Amortization		Net
July 31, 2021
Definite-lived customer relationships	$	1,444	$	(1,444)	$	—
Indefinite-lived trademarks and tradenames	15,905		—		15,905
	$	17,349	$	(1,444)	$	15,905
January 30, 2021
Definite-lived customer relationships	$	2,909	$	(2,791)	$	118
Indefinite-lived trademarks and tradenames	15,517		—		15,517
	$	18,426	$	(2,791)	$	15,635
August 1, 2020
Definite-lived customer relationships	$	2,843	$	(2,507)	$	336
Indefinite-lived trademarks and tradenames	15,327		—		15,327
	$	18,170	$	(2,507)	$	15,663

October 28, 2017
Total Level 1 Level 2 Level 3
(in thousands)
Financial assets:
Cash and cash equivalents $ 149,485
$ 149,485
$ —
$ —
Short-term investments 180,066
527
179,539
—
$ 329,551
$ 150,012
$ 179,539
$ —
Financial liabilities -
Contingent consideration liability $ 4,962
$ —
$ —
$ 4,962
$ 4,962
$ —
$ —
$ 4,962

January 28, 2017
Total Level 1 Level 2 Level 3
(in thousands)
Financial assets:
Cash and cash equivalents $ 110,657
$ 110,657
$ —
$ —
Short-term investments 98,530
2,446
96,084
—
Long-term investments 77,904
431
77,473
—
$ 287,091
$ 113,534
$ 173,557
$ —
Financial liabilities -
Contingent consideration liability $ 33,204
$ —
$ —
$ 33,204
$ 33,204
$ —
$ —
$ 33,204

October 29, 2016
Total Level 1 Level 2 Level 3
(in thousands)
Financial assets:
Cash and cash equivalents $ 60,962
$ 60,962
$ —
$ —
Short-term investments 78,512
2,547
75,965
—
Long-term investments 76,126
405
75,721
—
$ 215,600
$ 63,914
$ 151,686
$ —
Financial liabilities -
Contingent consideration liability $ 58,923
$ —
$ —
$ 58,923
$ 58,923
$ —
$ —
$ 58,923

~~The short-term and long-term investments categorized as Level 2 were valued using a market-based approach using inputs such as prices of similar assets in active markets. See Note 13,~~ ~~Commitments and Contingencies, for the estimated fair value (categorized as Level 3) of the contingent consideration liability and changes recognized.~~

We have financial assets and liabilities not required to be measured at fair value on a recurring basis, which primarily consist of accounts receivables, note receivable from Town Shoes, and accounts payables. The carrying value of accounts receivables and accounts payables approximated their fair values due to their short-term nature. As of October 28, 2017, January 28, 2017 and October 29, 2016, the fair value of the note receivable from Town Shoes was $49.9 million, $45.7 million and $44.4 million, respectively, compared to the carrying value of $60.2 million, $53.1 million and $50.6 million, respectively. We estimated the fair value of the note receivable based upon current interest rates offered on similar instruments. The change in fair value is

Table of Contents

~~DSW~~DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

based on the change in comparable rates on similar instruments. Based on our intention and ability to hold the note until maturity or the exercise of the put/call option, the carrying value is not other-than-temporarily impaired.

~~Non-Financial Assets- As discussed in Note 3,~~ ~~Significant Accounting Policies~~, during the three months ended October 28, 2017, we recorded impairment charges related to Ebuys of $53.8 million for goodwill, which resulted in writing off all of Ebuys' goodwill, and $28.9 million for intangible assets. We determined that the carrying values exceeded the related estimated fair values (categorized as Level 3). After the impairment charges were recorded, the balance of the tradename intangibles was $3.0 million. The fair value of intangible assets for tradenames was based on using the relief from royalty method using a royalty rate of 0.5% and a discount rate of 11.0%. We wrote-off the remaining carrying value of intangible assets for online retailer and customer relationships and for non-compete agreements due to the lack of sufficient projected cash flows.

9. ~~PROPERTY AND EQUIPMENT, NET~~

~~Property and equipment consisted of the following:~~

October 28, 2017 January 28, 2017 October 29, 2016
(in thousands)
Land $ 1,110
$ 1,110
$ 1,110
Buildings 12,485
12,485
12,485
Building and leasehold improvements 399,905
393,505
388,085
Furniture, fixtures and equipment 418,432
408,653
403,632
Software 136,295
123,460
122,946
Construction in progress⁽¹⁾
33,169
27,456
25,021
Total property and equipment 1,001,396
966,669
953,279
Accumulated depreciation and amortization (643,242 ) (591,418 ) (572,061 )
Property and equipment, net $ 358,154
$ 375,251
$ 381,218


~~(1)~~	~~Construction in progress is comprised primarily of the construction of leasehold improvements and furniture and fixtures related to unopened stores and internal-use software under development.~~

~~10.~~ ACCRUED EXPENSES

Accrued expenses consisted of the following:


(in thousands)	July 31, 2021		January 30, 2021		August 1, 2020
Gift cards	$	28,691	$	34,442	$	29,919
Accrued compensation and related expenses	49,037		49,864		29,422
Accrued taxes	35,030		24,206		22,624
Loyalty programs deferred revenue	15,255		11,379		14,797
Sales returns	19,204		17,333		20,713
Customer allowances and discounts	2,103		4,579		8,644
Other	72,735		58,523		76,712
	$	222,055	$	200,326	$	202,831

10. DEBT

October 28, 2017 January 28, 2017 October 29, 2016
(in thousands)
Gift cards and merchandise credits $ 38,423
$ 45,743
$ 36,455
Compensation 22,390
17,132
23,872
Taxes 20,361
21,764
29,658
Customer loyalty program 12,659
11,502
11,914
Other⁽¹⁾
48,157
34,193
41,754
$ 141,990
$ 130,334
$ 143,653


~~(1)~~	~~Other is comprised of deferred revenue, sales return allowance, and various other accrued expenses, including amounts owed under our vendor payment program described below.~~

~~To better facilitate~~Debt consisted of the ~~processing efficiency~~following:


(in thousands)	July 31, 2021		January 30, 2021		August 1, 2020
ABL Revolver	$	16,810	$	100,000	$	—
Term Loan	237,500		243,750		—
Credit Facility	—		—		393,000
Total debt	254,310		343,750		393,000
Less unamortized Term Loan debt issuance costs	(7,241)		(8,931)		—
Less current maturities of long-term debt	(62,500)		(62,500)		—
Long-term debt	$	184,569	$	272,319	$	393,000

ABL Revolver- On August 7, 2020, we replaced our Credit Facility with the ABL Revolver, which provides a revolving line of credit of up to $400.0 million, including a Canadian sub-limit of up to $20.0 million, a $50.0 million sub-limit for the issuance of letters of credit, a $40.0 million sub-limit for swing loan advances for U.S. borrowings, and a $2.0 million sub-limit for swing loan advances for Canadian borrowings. Our ABL Revolver matures in August 2025 and is secured by substantially all of our personal property assets, including a first priority lien on credit card receivables and inventory and a second priority lien on personal property assets that constitute first priority collateral for the Term Loan. 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 ~~vendor payments, during fiscal 2016,~~reserves. As of July 31, 2021, the ABL Revolver had a borrowing base of $386.1 million, with $16.8 million outstanding and $5.3 million in letters of credit issued, resulting in $364.0 million available for borrowings.

Borrowings 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 overnight bank funding rate plus 0.5%, and (iii) the adjusted one-month London Interbank Offered Rate ("LIBOR") (as defined) plus 1.0%; or (B) an adjusted LIBOR per annum (subject to a floor of 0.75%), plus, in each instance, an applicable rate to be determined based on average availability, with an interest rate of 3.0% as of July 31, 2021. Commitment fees are based on the unused portion of the ABL Revolver. Interest expense related to the ABL Revolver includes interest on borrowings and letters of credit, commitment fees and the amortization of debt issuance costs.

Term Loan- On August 7, 2020, we also entered into a ~~vendor payment program with a payment processing intermediary. Under the vendor payment program, the intermediary makes regularly-scheduled~~$250.0 million Term Loan. The Term Loan requires minimum quarterly principal payments ~~to participating vendors and we, in turn, settle monthly~~ with the ~~intermediary. The net change in the~~remaining outstanding balance due in August 2025. The Term Loan has limited prepayment requirements under certain conditions. The Term Loan is ~~reflected as~~collateralized by a ~~financing activity in~~first priority lien on substantially all of our personal and real property (subject to certain exceptions), including investment property and intellectual property, and by a second priority lien on certain other personal property, primarily credit card receivables and inventory, that constitute first priority collateral for the ~~consolidated statements of cash flows.~~ABL Revolver.

Table of Contents

~~DSW~~DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~11. NON-CURRENT LIABILITIES~~

~~Non-current liabilities consisted of the following:~~

October 28, 2017 January 28, 2017 October 29, 2016
(in thousands)
Construction and tenant allowances $ 82,135
$ 87,886
$ 90,359
Deferred rent 37,820
37,779
38,218
Accrual for lease obligations 8,310
7,283
8,237
Other⁽¹⁾

13,487
8,231
7,840
$ 141,752
$ 141,179
$ 144,654


~~(1)~~	~~Other is comprised of various other accrued expenses that we expect will settle beyond one year from the end of the applicable period.~~

~~12. DEBT~~

~~Credit Facility~~- On August 25, 2017, we entered into a senior unsecured revolving credit agreement (the "Credit Facility") with a maturity date of August 25, 2022 that replaced our previous secured revolving credit agreement and letter of credit agreement. The Credit Facility provides a revolving line of credit up to $300 million, with sub-limits for the issuance of up to $50 million in letters of credit, swing loan advances of up to $15 million, and the issuance of up to $75 million in foreign currency revolving loans and letters of credit. The Credit Facility may be further increased by up to $100 million subject to agreed-upon terms and conditions. The Credit Facility may be used to provide funds for working capital, capital expenditures, dividends and share repurchases, other expenditures, and permitted acquisitions as defined by the Credit Facility.

~~Loans issued~~Borrowings under the ~~revolving line of credit bear~~Term Loan accrue interest, at our option, at a rate equal to: (A) a base rate ~~or an alternate base~~per annum equal to the greater of (i) 3.25%, (ii) the prime rate, ~~as defined in~~(iii) the ~~Credit Facility plus a margin based on our leverage ratio, with any loans issued in CAD bearing interest at the alternate base~~overnight bank funding rate plus 0.5%, and (iv) the adjusted one-month LIBOR plus 1.0%, plus, in each instance, 7.5%; or (B) an adjusted LIBOR per annum (subject to a ~~margin based on our leverage ratio. Interest on letters~~floor of ~~credit issued under the Credit Facility is variable based on our leverage ratio and the type~~ 1.25%), plus 8.5%, with an interest rate of ~~letters~~9.8% (effective interest rate of credit. Commitment fees are based on the average unused portion of the Credit Facility at a variable rate based on our leverage ratio. As of October 28, 2017, we had no outstanding borrowings under the Credit Facility and $2.5 million in letters of credit issued, resulting in $297.5 million available for borrowings. Interest expense related to the Credit Facility includes letters of credit interest, commitment fees and11.8% when including the amortization of debt issuance ~~costs.~~costs) as of July 31, 2021.

Debt Covenants-The ~~Credit Facility~~ABL Revolver contains ~~financial~~a minimum availability covenant where an event of default shall occur if availability is less than the greater of $30.0 million or 10.0% of the maximum credit amount. The Term Loan includes a springing covenant imposing a minimum earnings before interest, taxes, depreciation, and amortization ("EBITDA") covenant, which arises when liquidity is less than $150.0 million. In addition, the ABL Revolver and the Term Loan each contain customary covenants restricting our activities, including limitations on the 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, ~~but~~in some cases, upon satisfying specified payment conditions. We are restricted from paying dividends or repurchasing stock until the third quarter of fiscal 2021 at the earliest, after which certain limitations apply. Both the ABL Revolver and the Term Loan contain customary events of default with cross-default provisions. Upon an event of default that is not ~~limited~~cured or waived within the cure periods, in addition to ~~limitations on indebtedness, liens and investments, as well as the maintenance of a leverage ratio not~~other remedies that may be available to ~~exceed 3.25:1 and a fixed charge coverage ratio not to be less than 1.75:1. A violation of any of the covenants could result in a default under the Credit Facility that would permit~~ the lenders, ~~to restrict our ability to further access~~ the ~~Credit Facility for loans and~~obligations may be accelerated, outstanding letters of credit may be required to be cash collateralized and ~~require~~remedies may be exercised against the ~~immediate repayment of any outstanding loans under the Credit Facility.~~collateral. As of ~~October 28, 2017,~~July 31, 2021, we were in compliance with all financial covenants.

~~13.~~11. COMMITMENTS AND CONTINGENCIES

~~Contingent Consideration Liability-~~ The contingent consideration liability resulted from the acquisition of Ebuys and is based on a defined earnings performance measure for fiscal years 2017, 2018 and 2019 with no defined maximum earn-out. The contingent consideration liability is based on our estimated fair value with any differences between the final acquisition-date fair value and the estimated settlement of the obligation, as remeasured each reporting period, being recognized as an adjustment to income from operations.

~~Table of Contents~~

~~DSW INC.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

(~~unaudited~~)

~~Activity for the contingent consideration liability was as follows:~~

Nine months ended
October 28, 2017 October 29, 2016
(in thousands)
Contingent consideration liability - beginning of period $ 33,204
$ —
Preliminary purchase price —
56,000
Accretion in value 3,506
5,080
Fair value adjustment⁽¹⁾
(32,432 ) —
Purchase price and other adjustments 684
(2,157 )
Contingent consideration liability - end of period $ 4,962
$ 58,923


~~(1)~~	Fair value was determined using an income valuation approach, primarily based on discounted cash flows related to the projected earnings performance measure with a discount rate of approximately 13.0%. The categorization of the fair value framework used to price the liability is considered Level 3 due to the subjective nature of the unobservable inputs used to determine fair value.

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 the 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.

~~Guarantee-~~ AsInsurance Recoveries- During fiscal 2020, a third-party vendor experienced a shutdown of services to us that impacted our ability to fulfill orders from customers for a limited period of time. This incident was covered under an insurance policy that provides for reimbursement of lost profits and recognized losses as a result of ~~a previous merger,~~the outage. During the fourth quarter of fiscal 2020, we ~~provided a guarantee~~recognized an insurance recovery receivable of $3.0 million, recorded as an offset to cost of sales, for arecognized losses that we believe are probable of being reimbursed through the insurance policy. Reimbursement for lost profits and any additional recoveries in excess of recognized losses are treated as gain contingencies and will be recognized when realized or realizable. We continue to work with the insurance carrier to reach an agreement on the total amount to be recovered.

Guarantee- We provide guarantees for lease ~~commitment~~obligations that isare scheduled to expire in ~~2024 of a location~~fiscal 2023 for locations that ~~has~~have been leased to a third ~~party.~~parties. If ~~the~~a third party does not pay the rent or vacates the premise, we may be required to make full rent payments to the landlord.

~~Contractual Obligations-~~As of ~~October 28, 2017, we have entered into various construction commitments, including capital items to be purchased~~July 31, 2021, the total future minimum lease payment requirements for ~~projects that were under construction, or for which a lease has been signed. Our obligations under~~ these ~~commitments were $0.2 million as of October 28, 2017. In addition, we have entered into various noncancelable purchase and service agreements. The obligations under these agreements~~guarantees were approximately ~~$21.6 million as of October 28, 2017.~~$13.3 million.

Table of Contents

~~DSW~~DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~14.~~12. SEGMENT REPORTING

Our two reportable segments, which are also operating segments, are the DSW segment, which includes DSW stores and dsw.com, and the ABG segment. Other includes Ebuys and franchise activity with the Apparel Group. The following provides certain key financial data by segment reconciled to the condensed consolidated financial statements:


(in thousands)	U.S. Retail		Canada Retail		Brand Portfolio		Other		Corporate/Eliminations		Total
Three months ended July 31, 2021
Net sales:
External customer sales	$	723,093	$	57,585	$	36,657	$	—	$	—	$	817,335
Intersegment sales	—		—		13,872		—		(13,872)		—
Total net sales	$	723,093	$	57,585	$	50,529	$	—	$	(13,872)	$	817,335
Gross profit	$	256,893	$	18,768	$	8,533	$	—	$	487	$	284,681
Income from equity investment	$	—	$	—	$	2,290	$	—	$	—	$	2,290
Three months ended August 1, 2020
Net sales:
External customer sales	$	393,977	$	49,582	$	23,889	$	22,266	$	—	$	489,714
Intersegment sales	—		—		6,569		—		(6,569)		—
Total net sales	$	393,977	$	49,582	$	30,458	$	22,266	$	(6,569)	$	489,714
Gross profit (loss)	$	40,097	$	5,650	$	(11,440)	$	118	$	2,617	$	37,042
Income from equity investment	$	—	$	—	$	2,153	$	—	$	—	$	2,153
Six months ended July 31, 2021
Net sales:
External customer sales	$	1,343,751	$	98,189	$	78,550	$	—	$	—	$	1,520,490
Intersegment sales	—		—		29,406		—		(29,406)		—
Total net sales	$	1,343,751	$	98,189	$	107,956	$	—	$	(29,406)	$	1,520,490
Gross profit	$	450,006	$	29,603	$	20,459	$	—	$	724	$	500,792
Income from equity investment	$	—	$	—	$	3,998	$	—	$	—	$	3,998
Six months ended August 1, 2020
Net sales:
External customer sales	$	771,050	$	78,911	$	86,647	$	35,889	$	—	$	972,497
Intersegment sales	—		—		25,924		—		(25,924)		—
Total net sales	$	771,050	$	78,911	$	112,571	$	35,889	$	(25,924)	$	972,497
Gross profit (loss)	$	7,127	$	3,339	$	2,464	$	(5,310)	$	2,962	$	10,582
Income from equity investment	$	—	$	—	$	4,423	$	—	$	—	$	4,423

DSW segment ABG segment Other Total
(in thousands)
Three months ended October 28, 2017
Net sales $ 654,587
31,059
22,662
$ 708,308
Gross profit $ 202,267
7,130
(2,680 ) $ 206,717
Three months ended October 29, 2016
Net sales $ 639,136
36,154
21,326
$ 696,616
Gross profit $ 203,978
7,850
(48 ) $ 211,780
Nine months ended October 28, 2017
Net sales $ 1,907,753
106,377
65,689
$ 2,079,819
Gross profit $ 579,455
24,066
(4,603 ) $ 598,918
Nine months ended October 29, 2016
Net sales $ 1,866,096
114,738
55,993
$ 2,036,827
Gross profit $ 573,283
25,880
3,835
$ 602,998

~~15. SUBSEQUENT EVENT~~

On November 21, 2017, the Board of Directors declared a quarterly cash dividend payment of $0.20 per share for both Class A and Class B Common Shares. The dividend will be paid on December 29, 2017 to shareholders of record at the close of business on December 15, 2017.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

~~Cautionary Statement Regarding Forward-Looking Information~~

Executive Overview and Trends in our Business

Operating profit in the second quarter of fiscal 2021 surpassed pre-COVID-19 levels with growth of 49% compared to the second quarter of 2019. This growth came despite the lingering effects of COVID-19, including global supply chain challenges. The volatile macro environment and supply chain disruptions have required us to be nimble and quickly adapt our business model.

As we look ahead to our strategic growth, we have organized our efforts around three pillars: Customer, Brand and Speed:

•Customer- More than ever, our customers have a great desire for ~~Purposes~~products and experiences, and we are adding resources to our digital, IT and analytics teams to understand precisely what they want and what can be improved to provide the best possible experience. Undertaking these actions will enable us to better understand our customers, provide improved service, and target new demographics in targeted and personalized ways that we have never deployed before. We are also developing new ideas for how we can provide more value to our VIP rewards members who continue to be the lifeblood of our business and our largest competitive differentiator.

•Brand- Controlling our own brand destiny is critical for our growth. As we continue to design some of the ~~"Safe Harbor" Provisions~~best brands in the industry, Vince Camuto, Jessica Simpson, Lucky Brand and JLO Jennifer Lopez, we are combining that with our strong direct-to-consumer distribution through our physical footprint in North America and digital infrastructure. We are also partnering with some of the ~~Private Securities Litigation Reform Act of 1995~~

~~Some~~top brands in the industry to offer one of the ~~statements~~largest and most broad assortments. We remain focused on investing in ~~this Quarterly Report on Form 10-Q~~some of the top 50 brands in footwear and will continue to prioritize growing our own brands.

•Speed- Moving quickly is of the utmost importance to consumers. We are developing processes to deliver products more quickly. Fulfillment of digital customer orders takes 5 to 7 business days and we are working to improve that to 2 to 3 calendar days while simultaneously finding efficiencies to contain ~~forward-looking statements which reflect~~costs. We are optimizing our current ~~views~~infrastructure and expanding our delivery partnerships. We are also working to improve collaboration through technology and processes across our organization and to gain additional efficiencies in our overall development cycle.

We have a proven track record of staying ahead of trends to ensure our success, despite some of the challenges we face, including COVID-19 variants and supply chain disruptions.

Impact of COVID-19

In response to the sudden and significant impacts resulting from the COVID-19 pandemic, we took several actions during the first quarter of fiscal 2020 to reduce costs and operations to levels that were more commensurate with ~~respect~~then-current sales, including furloughs and pay reductions. As this continues to ~~among other things, future events~~be an unprecedented period of uncertainty, we have made and financial performance. Such forward-looking statements can be identified by the use of forward-looking words such as "outlook," "believes," "expects," "potential," "continues," "may," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of those words or other comparable words. Any forward-looking statements contained in this Quarterly Report on Form 10-Q are based upon current plans, estimates, expectations and assumptions relatingmay continue to make adjustments to our ~~operations,~~operational plans, inventory controls, and liquidity management, as well as changes to our expense and capital expenditure plans.

Although operating results have improved throughout the first half of operations, financial condition, growth strategy and liquidity. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subjectfiscal 2021, we continue to ~~numerous risks, uncertainties~~experience adverse impacts due to COVID-19, including temporary store closures, reduced hours and other ~~factors that may cause actual results, performance or achievements to be materially different~~requirements in certain areas where government-imposed restrictions were mandated, and global supply chain challenges. Our retail customers in the Brand Portfolio segment have had and are having similar experiences. The impacts from ~~any future results, performance or achievements expressed or implied by~~ the forward-looking statements. In addition to those factors described under "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K filed on March 23, 2017, some important factors that could cause actual results, performance or achievements to differ materially from those discussed in forward-looking statements include, but are not limited to,COVID-19 pandemic remain challenging and unpredictable. While trends improved during the ~~following:~~

~~our success in growing our store base and digital demand;~~

~~our ability to protect our reputation;~~

~~maintaining strong relationships with our vendors;~~

~~our ability to anticipate and respond to fashion trends, consumer preferences and changing customer expectations;~~

~~risks related to the planned acquisition~~first half of ~~Town Shoes;~~

~~risks related to the loss or disruption of our distribution and/or fulfillment operations;~~

~~continuation of agreements with and our reliance on the financial condition of our affiliated business and international partners;~~

~~our ability to successfully integrate Ebuys, Inc.;~~

~~fluctuation of our comparable sales and quarterly financial performance;~~

~~risks related to the loss or disruption of our information systems and data;~~

~~our ability to prevent breaches of our information security and the compromise of sensitive and confidential data;~~

~~failure to retain our key executives or attract qualified new personnel;~~

~~our competitiveness with respect to style, price, brand availability and customer service;~~

~~our reliance on our DSW Rewards program and marketing to drive traffic, sales and customer loyalty;~~

~~uncertain general economic conditions;~~

~~our reliance on foreign sources for merchandise and risks inherent to international trade;~~

~~risks related to leases of our properties;~~

~~risks related to prior and current acquisitions;~~

~~risks related to future legislation, regulatory reform or policy changes;~~

~~fluctuations in foreign currency exchange rates; and~~

~~risks related to holdings of cash and investments and access to liquidity.~~

~~If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results, performance or achievements may vary materially from what~~fiscal 2021, we have projected. Furthermore, new factors emerge from time to time and it is not possible for management to predict all such factors, nor can management assess the impact of any such factor on the business orcannot reasonably estimate the extent to which ~~any factor,~~our business will continue to be affected by COVID-19 and to what extent the recent improved trends will continue. For instance, restrictions have recently been reinstated in certain locations within the U.S., and it is unclear whether these restrictions will continue and expand or ~~combination of factors, may cause results to differ materially from those contained~~if COVID-19 will result in ~~any forward-looking statement. Any forward-looking statement speaks only as~~long-term changes in consumer behavior. The ongoing and prolonged nature of the ~~date~~outbreak may lead to further adjustments to our operations. As such, the ultimate impacts of COVID-19 to our businesses remain highly uncertain and will depend on future developments, including global supply chain disruptions, the variants of COVID-19, and the global availability and use of vaccines, which ~~such statement is made,~~are highly uncertain and ~~except as required by law,~~cannot be predicted. As a result, we ~~undertake no obligation~~may have future write-downs or adjustments to ~~update any forward-looking statement to reflect events or circumstances after~~inventories, receivables, long-lived assets, intangibles, goodwill, and the ~~date~~valuation allowance on ~~which such statement is made or to reflect the occurrence of unanticipated events.~~deferred tax assets.

~~Executive Overview~~

With our mission to inspire self-expression, we are deepening our customer connection with unique products and meaningful experiences that will define us as the trusted authority for all things footwear. We are focused on differentiating our assortment by growing relevant brands and improving consistency and localization across our fleet. Furthermore, we are putting more product closer to the customer and co-developing technology that will empower associates to better serve our customers.

We are focused on leveraging our warehouse network and accelerating digital demand. With our brick and mortar locations within 20 miles from approximately 70% of our target population, we aim to provide a seamless shopping experience across all channels, with capabilities such as buy online, pickup in store and buy online, ship to store. We are mobilizing inventory across our channels, which increases our assortment breadth and enables us to effectively manage inventory within the enterprise. With our acquisition of Ebuys, we have expanded our presence in the fast-growing digital marketplaces and have started building the infrastructure that will better leverage Ebuys' platform in the coming years.

As of October 28, 2017, we operated 514 DSW stores, dsw.com and shoe departments in 292 Stein Mart stores and Steinmart.com, 58 Gordmans stores, and one Frugal Fannie's store. On March 13, 2017, Gordmans filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code and announced its plan to liquidate inventory and other assets. Stage Stores, Inc. acquired 58 of the Gordmans' stores and we have signed an agreement to provide services for these stores through the end of fiscal 2017. During the nine months ended October 28, 2017, Gordmans closed 48 stores.

Financial Summary and Other Key Metrics for the Second Quarter of Fiscal 2021

~~Total net~~Net sales increased to ~~$708.3~~$817.3 million for the three months ended ~~October 28, 2017~~July 31, 2021 from ~~$696.6~~$489.7 million for the three months ended ~~October 29, 2016.~~August 1, 2020. The ~~1.7%~~66.9% increase in ~~total~~ net sales was primarily driven by ~~new store~~an 84.9% increase in comparable sales during the three months ended July 31, 2021, due to the fact that during the three months ended August 1, 2020, many of our stores remained closed or, to the extent they reopened, experienced significantly reduced customer traffic since reopening. The higher net sales due to the increase in total comparable sales were partially offset by store closures, including those serviced in the ~~0.4% decrease~~Other segment. Also, during the first quarter of fiscal 2020, we maintained higher sales returns reserves with stores not being available to accept returns, which resulted in ~~comparable~~significantly lower net sales. However, sales⁽¹⁾ returns reserves normalized in the second quarter of fiscal 2020 as returns were not as high as expected, resulting in higher net sales. We did not have these significant changes in estimates between the first quarter and second quarter of fiscal 2021 as customer behavior has remained consistent. In addition, the ~~closure~~Brand Portfolio segment net sales were higher in the quarter as compared to the second quarter of ~~48 Gordmans stores.~~fiscal 2020 due to increased orders as our retailer customers recover, but still below pre-COVID-19 levels.

During the three months ended ~~October 28, 2017,~~July 31, 2021, gross profit as a percentage of net sales was ~~29.2%, a decrease of 120 basis points from 30.4% in~~34.8% as compared to 7.6% for the ~~previous~~same period last year. The ~~decrease~~improvement in ~~the~~ gross profit ~~rate~~ was primarily driven by increased sales as compared to the second quarter of fiscal 2020. In the second quarter of fiscal 2020, in response to the impacts of COVID-19 on our operations, we addressed the temporary closure of stores and the subsequent reduction in customer traffic upon store re-openings, with aggressive promotional activity. These actions resulted in higher inventory reserves, increased shipping costs associated with higher digital penetration, and the deleverage of distribution and fulfillment and store occupancy expenses on lower sales volume during fiscal 2020. During the second quarter of fiscal 2021, tight inventory positions resulted in fewer promotions. Accordingly, gross profit as a percentage of net sales for the second quarter of fiscal 2021 tracked higher ~~markdowns.~~than the pre-COVID-19 rate, which was 30.5% for the second quarter of fiscal 2019.

Net income for the three months ended ~~October 28, 2017~~July 31, 2021 was ~~$4.0~~$42.9 million, or $0.55 earnings per diluted share, which included net after-tax charges of $0.6 million, or $0.01 per diluted share, primarily related to target acquisition costs, restructuring charges, impairment charges, and the change in the valuation allowance on deferred tax assets. Net loss for the three months ended August 1, 2020 was $98.2 million, or a loss of $1.36 per diluted share, which included net after-tax charges of $4.1 million, or $0.05 per diluted share, ~~which included pre-tax charges of $52.7 million, or $0.40 per share,~~primarily related to ~~the goodwill and intangible assets~~ impairment charges ~~amortization of intangibles~~ and integration and restructuring expenses, offset by a gain from a settlement with a vendor.

Comparable Sales Performance Metric

The following table presents the ~~change~~increase (decrease) in ~~fair value~~comparable sales for each segment and in total:


	Three months ended
	July 31, 2021		August 1, 2020
Comparable sales:
U.S. Retail segment	94.3	%	(44.9)	%
Canada Retail segment	14.6	%	(27.9)	%
Brand Portfolio segment - direct-to-consumer channel	10.6	%	120.5	%
Other	NA		(36.2)	%
Total comparable sales	84.9	%	(42.7)	%

NA - Not applicable

We consider comparable sales, a primary metric commonly used throughout the retail industry, to be an important indicator of the ~~contingent consideration liability associated with~~performance of our retail and direct-to-consumer businesses. We include stores in our comparable sales metric for those stores in operation for at least 14 months at the ~~acquisition~~beginning of ~~Ebuys, restructuring costs,~~the fiscal year. Stores are added to the comparable base at the beginning of the year and ~~foreign exchange losses. Due to recurring operating losses incurred by Ebuys since its acquisition as well as increased competitive pressures~~are dropped for comparative purposes in the ~~digital marketplaces, we revised~~quarter in which they are closed. Comparable sales include stores temporarily closed as a result of COVID-19 as management continues to believe that this metric is meaningful to monitor our ~~growth expectations assumed~~performance. Comparable sales include e-commerce sales. Comparable sales for the Canada Retail segment exclude the impact of foreign currency translation and are calculated by translating current period results at the ~~time~~foreign currency exchange rate used in the comparable period of the ~~acquisition and have moderated future expectations~~prior year. Comparable sales for the ~~business. As a result, we undertook a review of Ebuys’ goodwill and intangible assets during~~Brand Portfolio segment include the direct-to-consumer e-commerce site, www.vincecamuto.com. Beginning with the third quarter of fiscal ~~2017~~2020, comparable sales no longer include the Other segment due to no longer having activity in the Other segment. The calculation of comparable sales

varies across the retail industry and, ~~recorded impairment charges~~as a result, the calculations of ~~$53.8 million for goodwill and $28.9 million for intangible assets. We also updated~~other retail companies may not be consistent with our ~~estimated fair value~~calculation.

Number of Stores

At the end of the ~~contingent consideration liability~~second quarter of fiscal 2021 and ~~recorded a gain from~~2020, we had the ~~fair value adjustment~~following number of ~~$32.4 million.~~ stores:


	July 31, 2021	August 1, 2020

U.S. Retail segment - DSW stores	515		522
Canada Retail segment:
The Shoe Company / Shoe Warehouse stores	116		117
DSW stores	27		27
	143		144
Total number of stores	658		666

Results of Operations

Comparison of the Three Months Ended July 31, 2021 with the Three Months Ended August 1, 2020


	Three months ended
	July 31, 2021				August 1, 2020				Change
(dollars in thousands, except per share amounts)	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Net sales	$	817,335	100.0	%	$	489,714	100.0	%	$	327,621	66.9	%
Cost of sales	(532,654)		(65.2)		(452,672)		(92.4)		(79,982)		17.7	%
Gross profit	284,681		34.8		37,042		7.6		247,639		668.5%
Operating expenses	(224,385)		(27.5)		(168,424)		(34.4)		(55,961)		33.2	%
Income from equity investment	2,290		0.3		2,153		0.4		137		6.4	%
Impairment charges	(1,174)		(0.1)		(6,735)		(1.4)		5,561		(82.6)%
Operating profit (loss)	61,412		7.5		(135,964)		(27.8)		197,376		NM
Interest expense, net	(8,072)		(1.0)		(3,788)		(0.8)		(4,284)		113.1	%
Non-operating income (expenses), net	(244)		(0.0)		743		0.2		(987)		NM
Income (loss) before income taxes	53,096		6.5		(139,009)		(28.4)		192,105		NM
Income tax benefit (provision)	(10,236)		(1.3)		40,795		8.3		(51,031)		NM
Net income (loss)	$	42,860	5.2	%	$	(98,214)	(20.1)	%	$	141,074	NM
Basic and diluted earnings (loss) per share:
Basic earnings (loss) per share	$	0.59			$	(1.36)			$	1.95	NM
Diluted earnings (loss) per share	$	0.55			$	(1.36)			$	1.91	NM
Weighted average shares used in per share calculations:
Basic shares	72,932				72,142				790		1.1	%
Diluted shares	77,619				72,142				5,477		7.6	%

NM - Not meaningful

Net ~~income for~~Sales- The following summarizes net sales by segment:


	Three months ended				Change
(dollars in thousands)	July 31, 2021		August 1, 2020		Amount		%		Comparable Sales %
Segment net sales:
U.S. Retail	$	723,093	$	393,977	$	329,116	83.5	%	94.3%
Canada Retail	57,585		49,582		8,003		16.1	%	14.6%
Brand Portfolio	50,529		30,458		20,071		65.9	%	10.6%
Other	—		22,266		(22,266)		NM		NA
Total segment net sales	831,207		496,283		334,924		67.5	%	84.9%
Elimination of intersegment net sales	(13,872)		(6,569)		(7,303)		111.2	%
Consolidated net sales	$	817,335	$	489,714	$	327,621	66.9	%

NA - Not applicable

NM - Not meaningful

The improvement in sales, including increases in comparable sales and total consolidated net sales, during the three months ended ~~October 29, 2016~~July 31, 2021 over the same period last year was ~~$39.0 million, or $0.47 per diluted share, which included pre-tax charges of $4.4 million, or $0.04 per share, related~~due to ~~transaction costs, purchase accounting impacts and change in fair value of~~ the ~~contingent consideration liability associated with the acquisition of Ebuys.~~

~~We have continued making investments in our business~~fact that ~~support our long-term growth objectives. During the nine months ended October 28, 2017, we invested $39.6 million in capital expenditures compared to $73.2 million~~ during ~~the nine months ended October 29, 2016. Our capital expenditures during fiscal 2017 primarily related to 15 new store openings, store remodels and business infrastructure.~~

~~(1)~~

A store or affiliated shoe department is considered comparable when in operation for at least 14 months at the beginning of the fiscal year. Stores or affiliated business departments, as the case may be, are added to the comparable base at the beginning of the year and are dropped for comparative purposes in the quarter they are closed. Comparable sales includes sales from dsw.com and currently excludes sales from Gordmans and Ebuys. The calculation of comparable sales varies across the retail industry and, as a result, the calculations of other retail companies may not be consistent with our calculation.

~~Results of Operations~~

~~The following represents components of our consolidated results of operations, expressed as percentages of net sales:~~

Three months ended Nine months ended
October 28, 2017 October 29, 2016 October 28, 2017 October 29, 2016
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales (70.8 ) (69.6 ) (71.2 ) (70.4 )
Gross profit 29.2
30.4
28.8
29.6
Operating expenses (21.4 ) (21.2 ) (21.8 ) (21.9 )
Goodwill and intangible assets impairment charges (11.7 ) —
(4.0 ) —
Change in fair value of contingent consideration liability 4.4
(0.2 ) 1.4
(0.3 )
Operating profit 0.5
9.0
4.4
7.4
Interest income, net 0.1
0.1
0.1
0.1
Non-operating income (expense) 0.0
0.0
(0.1 ) 0.0
Income before income taxes and income from Town Shoes 0.6
9.1
4.4
7.5
Income tax provision (0.2 ) (3.7 ) (1.7 ) (3.0 )
Income from Town Shoes 0.2
0.2
0.0
0.1
Net income 0.6 % 5.6 % 2.7 % 4.6 %

~~Three and Nine Months Ended October 28, 2017 Compared to Three and Nine Months Ended October 29, 2016~~

~~Net Sales~~

~~Net sales for~~ the three months ended ~~October 28, 2017~~August 1, 2020, many of our stores remained closed or, to the extent they reopened, experienced significantly reduced customer traffic since re-opening. During a portion of the second quarter of fiscal 2021, the Canada Retail segment was impacted by ongoing temporary closures and restrictions in certain key markets. The higher net sales due to the increase in total comparable sales was partially offset by store closures, including those serviced in the Other segment. Also, during the first quarter of fiscal 2020, we maintained higher sales returns reserves with stores not being available to accept returns, which resulted in significantly lower net sales. However, sales returns reserves normalized in the second quarter of fiscal 2020 as returns were not as high as expected, resulting in higher net sales. We did not have these significant changes in estimates between the first quarter and second quarter of fiscal 2021 as customer behavior has remained consistent. In addition, the Brand Portfolio segment net sales were higher in the quarter as compared to the second quarter of fiscal 2020 due to increased ~~1.7%~~orders as our retailer customers recover, but still below pre-COVID-19 levels.

Gross Profit- The following summarizes gross profit (loss) by segment:


	Three months ended
	July 31, 2021				August 1, 2020
(dollars in thousands)	Amount		% of Segment Net Sales		Amount		% of Segment Net Sales		Change
Segment gross profit (loss):
U.S. Retail	$	256,893	35.5	%	$	40,097	10.2	%	$	216,796
Canada Retail	18,768		32.6	%	5,650		11.4	%	$	13,118
Brand Portfolio	8,533		16.9	%	(11,440)		(37.6)	%	$	19,973
Other	—		—	%	118		0.5	%	$	(118)
	284,194				34,425
Elimination of intersegment gross profit	487				2,617
Gross profit	$	284,681	34.8	%	$	37,042	7.6	%	$	247,639

The improvement in gross profit was primarily driven by increased sales during the quarter as compared to the three months ended ~~October 29, 2016. Net sales for~~August 1, 2020. In the ~~nine months ended October 28, 2017 increased 2.1% compared~~second quarter of fiscal 2020, in response to the ~~nine months ended October 29, 2016. The following summarizes~~impacts of COVID-19 on our operations, we addressed the ~~change in total net sales from the same period last year:~~

Three months ended October 28, 2017 Nine months ended October 28, 2017
(in thousands)
Net sales for the same period last year $ 696,616
$ 2,036,827
Decrease in comparable sales (2,513 ) (18,385 )
Net increase from non-comparable store sales, Gordmans, Ebuys and other changes 14,205
61,377
Total net sales $ 708,308
$ 2,079,819

~~The following summarizes net sales by segment:~~

Three months ended Nine months ended
October 28, 2017 October 29, 2016 Change October 28, 2017 October 29, 2016 Change
(in thousands)
DSW segment $ 654,587
$ 639,136
$ 15,451
$ 1,907,753
$ 1,866,096
$ 41,657
ABG segment 31,059
36,154
(5,095 ) 106,377
114,738
(8,361 )
Other⁽¹⁾
22,662
21,326
1,336
65,689
55,993
9,696
Total net sales $ 708,308
$ 696,616
$ 11,692
$ 2,079,819
$ 2,036,827
$ 42,992


~~(1)~~	~~Other represents net sales for Ebuys and franchise activity with the Apparel Group.~~

~~The following summarizes our comparable sales change by reportable segment and in total:~~

Three months ended Nine months ended
October 28, 2017 October 29, 2016 October 28, 2017 October 29, 2016
DSW segment (0.4 )% (1.8 )% (1.0 )% (1.5 )%
ABG segment 0.5 % (4.6 )% (0.5 )% (3.1 )%
Total Company (0.4 )% (2.0 )% (1.0 )% (1.6 )%

~~Our increase in total net sales for the three and nine months ended October 28, 2017 over the same periods last year was primarily driven by new store sales, offset by the decrease in comparable sales~~temporary closure of stores and the ~~decrease due to the closure of 48 Gordmans stores. Within the DSW segment, comparable sales decreased as we had a decline~~subsequent reduction in ~~comparable average dollar sales per transaction, partially offset by~~customer traffic upon store re-openings with aggressive promotional activity. These actions resulted in higher ~~comparable transactions. We had growth in~~inventory reserves, increased shipping costs associated with higher digital ~~demand with an increase in our store fulfillment of digital orders.~~

~~Gross Profit~~

Gross profit decreased as a percentage of net sales to 29.2% for the three months ended October 28, 2017 from 30.4% for the three months ended October 29, 2016. Gross profit decreased as a percentage of net sales to 28.8% for the nine months ended October 28, 2017 from 29.6% for the nine months ended October 29, 2016. The following presents each segment's gross profit and their components,penetration, and the ~~total Company~~deleverage of distribution and fulfillment and store occupancy expenses on lower sales volume during fiscal 2020. During the second quarter of fiscal 2021, tight inventory positions resulted in being less

promotional. Accordingly, gross profit as a percentage of net ~~sales:~~sales for the second quarter of fiscal 2021 tracked higher than the pre-COVID-19 rate, which was 30.5% for the second quarter of fiscal 2019. The Canada Retail and Brand Portfolio segments have significantly improved gross profit as a percentage of net sales during the quarter as compared to the same period last year, but remained below pre-COVID-19 levels when compared to the second quarter of fiscal 2019 due to the deleverage impacts of lower net sales.

Three months ended Nine months ended
October 28, 2017 October 29, 2016 October 28, 2017 October 29, 2016
DSW segment merchandise margin 44.0 % 45.0 % 43.7 % 44.0 %
Store occupancy expenses (10.9 ) (10.8 ) (11.1 ) (11.1 )
Distribution and fulfillment expenses (2.2 ) (2.3 ) (2.2 ) (2.2 )
DSW segment gross profit 30.9 % 31.9 % 30.4 % 30.7 %
ABG segment merchandise margin 44.3 % 43.5 % 44.3 % 44.1 %
Occupancy expenses (20.2 ) (20.7 ) (20.6 ) (20.4 )
Distribution and fulfillment expenses (1.1 ) (1.1 ) (1.1 ) (1.1 )
ABG segment gross profit 23.0 % 21.7 % 22.6 % 22.6 %
Other segment merchandise margin - Ebuys 18.1 % 27.7 % 22.7 % 31.6 %
Marketplace fees (12.9 ) (12.4 ) (12.2 ) (11.8 )
Fulfillment expenses (17.0 ) (15.5 ) (17.5 ) (13.0 )
Other segment gross profit - Ebuys (11.8 )% (0.2 )% (7.0 )% 6.8 %
Total Company gross profit 29.2 % 30.4 % 28.8 % 29.6 %
Elimination of intersegment gross profit consisted of the following:


	Three months ended
(in thousands)	July 31, 2021		August 1, 2020
Elimination of intersegment activity:
Net sales recognized by Brand Portfolio segment	$	(13,872)	$	(6,569)
Cost of sales:
Cost of sales recognized by Brand Portfolio segment	9,707		4,827
Recognition of intersegment gross profit for inventory previously purchased that was subsequently sold to external customers during the current period	4,652		4,359
Gross profit	$	487	$	2,617

~~DSW segment merchandise margin decreased 100 basis points for~~

Operating Expenses- For the three months ended ~~October 28, 2017~~July 31, 2021, operating expenses increased by $56.0 million over the same period last year, primarily driven by the implementation of temporary leaves of absence without pay for a significant number of our employees and reducing pay for nearly all employees not placed on temporary leave for most of the second quarter of fiscal 2020. Operating expenses during the second quarter of fiscal 2020 were offset by a gain from a settlement with a vendor of $9.0 million. Operating expenses as a percentage of sales improved to 27.5% compared to 34.4% in the same period last year but were still elevated compared to the pre-COVID-19 rate for the second quarter of fiscal 2019, which was 26.0% as a percentage of sales, primarily due to higher ~~shipping costs~~direct marketing and ~~higher markdowns, partially offset by higher initial markup, while occupancy expenses~~incentive compensation expense and ~~distribution~~lower sales in the Brand Portfolio segment.

Impairment Charges- During the three months ended July 31, 2021 and ~~fulfillment expenses remained relatively flat. ABG segment gross profit increased 130 basis points~~August 1, 2020, we evaluated certain long-lived assets based on our intent to use such assets going forward and, as a result, we recorded impairment charges of $1.2 million and $6.7 million, respectively.

Income Taxes- Our effective tax rate changed from 29.3% for the three months ended ~~October 28, 2017~~August 1, 2020 to 19.3% for the three months ended July 31, 2021. The rate for the three months ended July 31, 2021 is the result of maintaining a full valuation allowance on deferred tax assets. The rate for the three months ended August 1, 2020 is the result of carry back of losses to a tax year where the U.S. federal statutory tax rate was 35%.

Comparison of the Six Months Ended July 31, 2021 with the Six Months Ended August 1, 2020


	Six months ended
	July 31, 2021				August 1, 2020				Change
(dollars in thousands, except per share amounts)	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Net sales	$	1,520,490	100.0	%	$	972,497	100.0	%	$	547,993	56.3	%
Cost of sales	(1,019,698)		(67.1)		(961,915)		(98.9)		(57,783)		6.0	%
Gross profit	500,792		32.9		10,582		1.1		490,210		4,632.5%
Operating expenses	(425,199)		(28.0)		(355,645)		(36.6)		(69,554)		19.6	%
Income from equity investment	3,998		0.3		4,423		0.5		(425)		(9.6)	%
Impairment charges	(1,174)		(0.1)		(119,282)		(12.3)		118,108		(99.0)%
Operating profit (loss)	78,417		5.1		(459,922)		(47.3)		538,339		NM
Interest expense, net	(16,886)		(1.1)		(5,946)		(0.6)		(10,940)		184.0	%
Non-operating income, net	562		0.0		656		0.1		(94)		(14.3)%
Income (loss) before income taxes	62,093		4.0		(465,212)		(47.8)		527,305		NM
Income tax benefit (provision)	(2,207)		(0.1)		151,140		15.5		(153,347)		NM
Net income (loss)	$	59,886	3.9	%	$	(314,072)	(32.3)	%	$	373,958	NM
Basic and diluted earnings (loss) per share:
Basic earnings (loss) per share	$	0.82			$	(4.36)			$	5.18	NM
Diluted earnings (loss) per share	$	0.78			$	(4.36)			$	5.14	NM
Weighted average shares used in per share calculations:
Basic shares	72,773				72,028				745		1.0	%
Diluted shares	77,271				72,028				5,243		7.3	%

NM - Not meaningful

Net Sales- The following summarizes net sales by segment:


	Six months ended				Change
(dollars in thousands)	July 31, 2021		August 1, 2020		Amount		%		Comparable Sales %
Segment net sales:
U.S. Retail	$	1,343,751	$	771,050	$	572,701	74.3	%	74.5%
Canada Retail	98,189		78,911		19,278		24.4	%	12.6%
Brand Portfolio	107,956		112,571		(4,615)		(4.1)	%	8.6%
Other	—		35,889		(35,889)		NM		NA
Total segment net sales	1,549,896		998,421		551,475		55.2	%	68.1%
Elimination of intersegment net sales	(29,406)		(25,924)		(3,482)		13.4	%
Consolidated net sales	$	1,520,490	$	972,497	$	547,993	56.3	%

NA - Not applicable

NM - Not meaningful

The increases in comparable sales for all segments and in total consolidated net sales was a result of the temporary closure of all stores beginning in March 2020 through much of the second quarter of fiscal 2020 and, since re-opening, we experienced significantly reduced customer traffic and net sales. During a portion of the first half of fiscal 2021, the Canada Retail segment was impacted by ongoing temporary closures and restrictions in certain key markets. The higher net sales due to the increase in total comparable sales was partially offset by store closures, including those serviced in the Other segment.

Gross Profit- The following summarizes gross profit (loss) by segment:


	Six months ended
	July 31, 2021				August 1, 2020
(dollars in thousands)	Amount		% of Segment Net Sales		Amount		% of Segment Net Sales		Change
Segment gross profit (loss):
U.S. Retail	$	450,006	33.5	%	$	7,127	0.9	%	$	442,879
Canada Retail	29,603		30.1	%	3,339		4.2	%	$	26,264
Brand Portfolio	20,459		19.0	%	2,464		2.2	%	$	17,995
Other	—		—	%	(5,310)		(14.8)	%	$	5,310
	500,068				7,620
Elimination of intersegment gross profit	724				2,962
Gross profit	$	500,792	32.9	%	$	10,582	1.1	%	$	490,210

The improvement in gross profit was primarily driven by increased sales during the six months ended July 31, 2021 as compared to the same period last year. In the second quarter of fiscal 2020, in response to the impacts of COVID-19 on our operations, we addressed the temporary closure of stores and the subsequent reduction in customer traffic upon store re-openings with aggressive promotional activity. These actions resulted in higher inventory reserves, increased shipping costs associated with higher digital penetration, and the deleverage of distribution and fulfillment and store occupancy expenses on lower sales volume during fiscal 2020. During the six months ended July 31, 2021, tight inventory positions resulted in fewer promotions. Accordingly, gross profit as a percentage of net sales for the six months ended July 31, 2021 tracked higher than the pre-COVID-19 rate, which was 30.1% for the same period in fiscal 2019. The Canada Retail and Brand Portfolio segments have significantly improved gross profit as a percentage of net sales during the six months ended July 31, 2021 as compared to the same period last year, but remained below pre-COVID-19 levels when compared to the same period in fiscal 2019 due to the deleverage impacts of lower net sales.

Elimination of intersegment gross profit consisted of the following:


	Six months ended
(in thousands)	July 31, 2021		August 1, 2020
Elimination of intersegment activity:
Net sales recognized by Brand Portfolio segment	$	(29,406)	$	(25,924)
Cost of sales:
Cost of sales recognized by Brand Portfolio segment	20,642		16,961
Recognition of intersegment gross profit for inventory previously purchased that was subsequently sold to external customers during the current period	9,488		11,925
Gross profit	$	724	$	2,962

Operating Expenses- For the six months ended July 31, 2021, operating expenses increased by $69.6 million over the same period last year, ~~due~~primarily driven by the implementation of temporary leaves of absence without pay for a significant number of our employees and reducing pay for nearly all employees not placed on temporary leave in response to ~~higher initial markups, partially offset by higher markdowns, and lower occupancy expenses. During~~COVID-19 for most of the three months ended October 28, 2017, Ebuys' merchandise margin was negatively impacted by lower markups and additional inventory reserves, as well as higher fulfillment expenses as Ebuys transitioned to a single fulfillment center.

DSW segment merchandise margin decreased 30 basis points for the nine months ended October 28, 2017 over the same period last year due to higher shipping costs and higher markdowns, partially offset by higher initial markup, while occupancy expenses and distribution and fulfillment expenses remained flat. For the nine months ended October 28, 2017, ABG segment gross profit was flat to last year. During the nine months ended October 28, 2017, Ebuys' merchandise margin was negatively impacted by higher markdowns and additional inventory reserves, as well as higher fulfillment expenses as Ebuys transitioned to a single fulfillment center.

first half of fiscal 2020. Operating ~~Expenses~~

~~For the three months ended October 28, 2017, operating~~ expenses as a percentage of ~~net~~ sales ~~increased 20 basis points over the same period last year due~~improved to higher marketing and technology expenses partially offset by lower corporate expenses, improved leverage of store expenses, and higher transaction costs associated with the acquisition of Ebuys included in the same period last year. For the nine months ended October 28, 2017, operating expenses as a percentage of net sales decreased 10 basis points over the same period last year due28.0% compared to ~~lower corporate expenses, improved leverage of store expenses, and higher transaction costs associated with the acquisition of Ebuys included~~36.6% in the same period last year ~~partially offset by~~but were still elevated compared to the pre-COVID-19 rate, which was 25.4% as a percentage of sales for the same period in fiscal 2019, primarily due to higher direct marketing expense and ~~technology expenses.~~incentive compensation and lower sales.

~~Goodwill and intangible assets~~

Impairment Charges- During the six months ended July 31, 2021, we recorded an impairment ~~charges~~

charge of $1.2 million for abandoned equipment we are replacing. As a result of the ~~recurring operating losses incurred by Ebuys since its acquisition as well as increased competitive pressures~~material reduction in net sales and cash flows due to the ~~digital marketplaces, we undertook a review~~temporary closure of ~~Ebuys’ goodwill and intangible assets~~all of our stores during the ~~third quarter of fiscal 2017 and~~six months ended August 1, 2020, we performed an impairment analysis at the store-level. In addition, we evaluated other long-lived assets based on our intent to use such assets going forward. During the six months ended August 1, 2020, we recorded impairment charges of ~~$53.8~~$92.8 million for ~~goodwill and $28.9~~under-performing stores. Also during the six months ended August 1, 2020, we recorded an impairment charge of $6.5 million for the Brand Portfolio segment customer relationship intangible ~~assets.~~

~~Change~~resulting in ~~fair value of contingent consideration liability~~

~~During the third quarter of fiscal 2017 in conjunction with our review of the carrying amount of Ebuys' goodwill and intangible assets, we made fair value adjustments~~a full impairment due to the ~~contingent consideration liability based on Ebuys' results~~lack of ~~operations during the year and revised projections for~~projected cash flows over the remaining ~~contingent periods. For the three and nine months ended October 28, 2017, we recorded a net gain~~useful life. Further, as a result of the material reduction in net sales and cash flows and the decrease in the Company's market capitalization due to the impact of COVID-19 on macroeconomic conditions, we performed an impairment analysis for goodwill and other indefinite-lived intangible assets. Our analysis concluded that the fair value ~~adjustments net~~ of ~~accretion and other adjustments. For~~ the ~~three and~~First Cost reporting unit within the ~~nine~~Brand Portfolio segment did not exceed its carrying value. Accordingly, during the six months ended ~~October 29, 2016,~~August 1, 2020, we ~~had accretion expense as we increased~~recorded an impairment charge of $20.0 million for the ~~contingent consideration over time.~~First Cost reporting unit in the Brand Portfolio segment, resulting in a full impairment.

~~Non-operating~~ Income ~~(Expense)~~

~~Non-operating income (expense) primarily reflects recognized foreign exchange gains (losses) resulting from transactions with our Canadian investments.~~

~~Income Taxes~~

Taxes- Our effective tax rate changed from 32.5% for the ~~three~~six months ended ~~October 28, 2017 and October 29, 2016 was 27.0% and 39.7%, respectively.~~August 1, 2020 to 3.6% for the six months ended July 31, 2021. The ~~decrease in~~rate for the ~~quarterly effective income~~six months ended July 31, 2021 is the result of maintaining a full valuation allowance on deferred tax assets while also recording net discrete tax benefits, primarily as a result of adjustments to our estimated fiscal 2020 return reflecting implemented tax strategies. The rate for the six months ended August 1, 2020 is the result of carry back of losses to a tax year where the U.S. federal statutory tax rate was primarily driven by applying the quarterly change of the fiscal year rate on significantly lower pre-tax income. Our effective tax rate for the nine months ended October 28, 2017 and October 29, 2016 was 39.0% and 39.1%, respectively.35%.

~~Income from Town Shoes~~

~~Income from Town Shoes includes our portion of the income (loss) in Town Shoes' operations, offset by the interest income on the note receivable from Town Shoes.~~

Seasonality

Our business is generally subject to seasonal ~~merchandise~~ trends driven by the change in weather conditions and our customers' interest in new seasonal styles. New spring styles are primarily introduced in the first quarter and new fall styles are primarily introduced in the third quarter. Since the COVID-19 outbreak, we have not experienced the typical seasonal trends given the changes in customer behavior.

Liquidity and Capital Resources

Overview

Our primary ongoing operating cash flow requirements are for inventory purchases, payments on lease obligations and licensing commitments, other working capital needs, capital expenditures, ~~for new stores, improving our information technology systems~~ and ~~infrastructure growth.~~debt service. Our working capital and inventory levels ~~typically build~~fluctuate seasonally. ~~During the first half of fiscal 2018, we intend to exercise the call option to purchase the remaining interest in Town Shoes.~~

On ~~August 17, 2017, the Board of Directors 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.~~ ~~During the nine months ended October 28, 2017, we repurchased 0.5 million Class A Common Shares at a cost of $9.4 million,~~

with $524.1 million of Class A Common Shares that remain authorized 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 common shares under the program. Shares will be repurchased in the open market at times and in amounts considered appropriate based on price and market conditions.

We are committed to a cash management strategy that maintains liquidity to adequately support the operation of the business ~~pursue our growth strategy~~ and withstand unanticipated business ~~volatility.~~volatility, including the impact of COVID-19. We believe that cash generated from our operations, together with our current levels of cash, ~~and investments,~~ as well as ~~availability under~~the use of our ~~Credit Facility,~~ABL Revolver, are sufficient ~~over the next 12 months and the foreseeable future~~ to maintain our ongoing operations, ~~support seasonal working capital requirements,~~ fund capital expenditures, ~~repurchase common shares under~~and meet our ~~share repurchase program, and complete~~debt service obligations over the ~~Town Shoes acquisition.~~next 12 months.

Operating Cash Flows

For the ~~nine~~six months ended ~~October 28, 2017,~~July 31, 2021, net cash provided by operations was ~~$138.6~~$96.2 million compared to ~~$110.8~~net cash used in operations of $79.6 million for the ~~nine~~six months ended ~~October 29, 2016.~~August 1, 2020. The ~~increase~~change was ~~primarily~~ driven by the ~~timing of working capital payments~~net income recognized in the six months ended July 31, 2021 versus a net loss incurred during that same period last year as a result of ~~shifts in receipts of inventory offset by higher payments for income taxes as well as lower net income adjusted~~COVID-19, after adjusting for non-cash ~~activity. Non-cash~~ activity ~~included goodwill and intangible assets~~including impairment charges ~~the change in the fair value of the contingent consideration liability, depreciation and amortization, stock-based compensation expense,~~ and the ~~related~~ change in deferred income taxes. This was partially offset by higher spend on working capital as business recovers from COVID-19 and the measures we implemented last year to manage our working capital to preserve liquidity, including delaying vendor and landlord payments while we renegotiate terms, reducing inventory orders, and significantly cutting costs.

Investing Cash Flows

For the ~~nine~~six months ended ~~October 28, 2017,~~July 31, 2021, our net cash used in investing activities was ~~$47.4~~$13.2 million, ~~compared~~which was due to capital expenditures relating to infrastructure and IT projects and store improvements. During the six months ended August 1, 2020, our net cash provided by investing activities was $6.8 million, which was due to the liquidation of ~~$5.9 million for~~our available-for-sale securities and the ~~nine months ended October 29, 2016. During the nine months ended October 28, 2017, we paid $39.6 million for~~proceeds from a settlement from a vendor partially offset by capital expenditures of which $16.2 million related to stores, $16.6 million related to technology and the remaining related to other business projects. During the nine months ended October 29, 2016, we paid $73.2 million for capital expenditures, of which $36.9 million related to new stores, $17.6 million related to technology and the remaining related to other business projects. During the nine months ended October 28, 2017, we had net purchases of investments of $2.2 million compared to net sales of investments of $145.6 million during the nine months ended October 29, 2016, which was partially used to fund the $59.5 million acquisition of Ebuys.$22.1 million.

Financing Cash Flows

For the ~~nine~~six months ended ~~October 28, 2017,~~July 31, 2021, our net cash used in financing activities was ~~$57.0~~$95.0 million compared to ~~$90.6~~net cash provided by financing activities of $193.2 million for the ~~nine~~six months ended ~~October 29, 2016. Net~~August 1, 2020. During the six months ended July 31, 2021, we had net payments of $83.2 million from the ABL Revolver and payments on the Term Loan of $6.3 million. During the six months ended August 1, 2020, we had net borrowings of $203.0 million from the Credit Facility as a precautionary measure to increase our cash ~~used in financing activities was primarily related to~~position and preserve financial flexibility considering the ~~payment of dividends and cash paid for treasury shares under our share repurchase program.~~uncertainty from COVID-19.

Debt

~~Credit Facility~~- ABL Revolver- On August ~~25, 2017,~~7, 2020, we ~~entered into a senior unsecured revolving credit agreement (the "Credit Facility")~~replaced the Credit Facility with ~~a maturity date of August 25, 2022 that replaced our previous secured revolving credit agreement and letter of credit agreement. The Credit Facility~~the ABL Revolver, which provides a revolving line of credit of up to ~~$300~~$400.0 million, ~~with sub-limits~~including a Canadian sub-limit of up to $20.0 million, a $50.0 million sub-limit for the issuance of ~~up to $50 million in~~ letters of credit, a $40.0 million sub-limit for swing loan advances for U.S. borrowings, and a $2.0 million sub-limit for swing loan advances for Canadian borrowings. Our ABL Revolver matures in August 2025 and is secured by substantially all of ~~up to $15 million,~~our personal property assets, including a first priority lien on credit card receivables and inventory and a second priority lien on personal property assets that constitute first priority collateral for the ~~issuance of up to $75 million in foreign currency revolving loans and letters of credit.~~Term Loan. The Credit Facility may be further increased by up to $100 million subject to agreed-upon terms and conditions. The Credit Facility may be used to provide funds for working capital, capital expenditures, dividends and share repurchases, other expenditures, and permitted acquisitions as defined by the Credit Facility.

~~Loans issued under the revolving line~~amount of credit ~~bear interest, at our option, at~~available is limited to a borrowing base ~~rate or an alternate base rate as defined in the Credit Facility plus~~formulated on, among other things, a margin based on our leverage ratio, with any loans issued in CAD bearing interest at the alternate base rate plus a margin based on our leverage ratio. Interest on letters of credit issued under the Credit Facility is variable based on our leverage ratio and the type of letters of credit. Commitment fees are based on the average unused portionpercentage of the ~~Credit Facility at a variable rate based on our leverage ratio.~~book value of eligible inventory and credit card receivables, as reduced by certain reserves. As of ~~October 28, 2017, we~~July 31, 2021, the ABL Revolver had noa borrowing base of $386.1 million, with $16.8 million outstanding ~~borrowings under the Credit Facility~~ and ~~$2.5~~$5.3 million in letters of credit issued, resulting in ~~$297.5~~$364.0 million available for borrowings.

Borrowings 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 overnight bank funding rate plus 0.5%, and (iii) the adjusted one-month London Interbank Offered Rate ("LIBOR") (as defined) plus 1.0%; or (B) an adjusted LIBOR per annum (subject to a floor of 0.75%), plus, in each instance, an applicable rate to be determined based on average availability, with an interest rate of 3.0% as of July 31, 2021. Commitment fees are based on the unused portion of the ABL Revolver. Interest expense related to the ~~Credit Facility~~ABL Revolver includes interest on borrowings and letters of credit, ~~interest,~~ commitment fees and the amortization of debt issuance costs.

Term Loan- On August 7, 2020, we also entered into a $250.0 million Term Loan. The Term Loan requires minimum quarterly principal payments with the remaining outstanding balance due in August 2025. The Term Loan has limited prepayment requirements under certain conditions. The Term Loan is collateralized by a first priority lien on substantially all of our personal and real property (subject to certain exceptions), including investment property and intellectual property, and by a second priority lien on certain other personal property, primarily credit card receivables and inventory, that constitute first priority collateral for the ABL Revolver.

Borrowings under the Term Loan accrue interest, at our option, at a rate equal to: (A) a base rate per annum equal to the greater of (i) 3.25%, (ii) the prime rate, (iii) the overnight bank funding rate plus 0.5%, and (iv) the adjusted one-month LIBOR plus 1.0%, plus, in each instance, 7.5%; or (B) an adjusted LIBOR per annum (subject to a floor of 1.25%), plus 8.5%, with an interest rate of 9.8% (effective interest rate of 11.8% when including the amortization of debt issuance costs) as of July 31, 2021.

Debt Covenants-The ~~Credit Facility~~ABL Revolver contains ~~financial~~a minimum availability covenant where an event of default shall occur if availability is less than the greater of $30.0 million or 10.0% of the maximum credit amount. The Term Loan includes a springing covenant imposing a minimum EBITDA covenant, which arises when liquidity is less than $150.0 million. In addition, the ABL Revolver and the Term Loan each contain customary covenants restricting our activities, including limitations on the 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, ~~but~~in some cases, upon satisfying specified payment conditions. We are restricted from paying dividends or repurchasing stock until the third quarter of fiscal 2021 at the earliest, after which certain limitations apply. Both the ABL Revolver and the Term Loan contain customary covenants of default with cross-default provisions. Upon an event of default that is not ~~limited~~cured or waived within the cure periods, in addition to ~~limitations on indebtedness, liens and investments, as well as the maintenance of a leverage ratio not~~other remedies that may be available to ~~exceed 3.25:1 and a fixed charge coverage ratio not to be less than 1.75:1. A violation of any of the covenants could result in a default under the Credit Facility that would permit~~ the lenders, ~~to restrict our ability to further access~~ the ~~Credit Facility for loans and~~obligations may be accelerated, outstanding letters of credit may be required to be cash collateralized and ~~require~~remedies may be exercised against the ~~immediate repayment of any outstanding loans under the Credit Facility.~~collateral. As of ~~October 28, 2017,~~July 31, 2021, we were in compliance with all financial covenants.

Capital Expenditure Plans

We expect to spend approximately ~~$75~~ $35.0 million to $45.0 million for capital expenditures in fiscal ~~2017, with approximately a third going into new stores and store remodels and~~2021, of which we invested $13.2 million during the ~~remaining going into technology investments, including digital investments, and other business projects.~~six months ended July 31, 2021. Our ~~future investments~~capital expenditures for the remainder of the year will depend primarily on the number of ~~stores we open and remodel,~~store projects, as well as infrastructure and ~~information technology~~IT projects that we undertake and the timing of these expenditures. During fiscal 2017, we opened 15 stores. The average investment required to open a new DSW store is approximately $1.4 million, prior to construction and tenant allowances, which average $0.4 million. Of this amount, gross inventory typically accounts for $0.5 million, fixtures and leasehold improvements typically account for $0.7 million, and new store advertising and other new store expenses typically account for $0.2 million.

~~Off-Balance Sheet Liabilities and Other Contractual Obligations~~

~~We do not have any material off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K.~~

We have included a summary of our contractual obligations as of January 28, 2017 in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017. As of October 28, 2017, we have entered into various noncancelable purchase and service agreements resulting in purchase obligations of approximately $21.6 million. In addition, we reduced our expected future payments for the contingent consideration liability related to the Ebuys acquisition to approximately $5.6 million. There have been no other material changes in contractual obligations outside the ordinary course of business since January 28, 2017.

~~Recent Accounting Pronouncements~~

~~The information related to recent accounting pronouncements as set forth in Note 3,~~ ~~Significant Accounting Policies, of the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q is incorporated herein by reference.~~

Critical Accounting Policies and Estimates

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of commitments and contingencies at the date of the condensed consolidated financial statements and reported amounts of ~~revenues~~revenue and expenses during the reporting period. We base these estimates and judgments on factors we believe to be relevant, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The process of determining significant estimates is fact-specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and in some cases, actuarial and ~~appraisal~~valuation techniques. We constantly re-evaluate these significant factors and make adjustments where facts and circumstances dictate.

While we believe that the factors considered provide a meaningful basis for the accounting policies applied in the preparation of the condensed consolidated financial statements, we cannot guarantee that our estimates and assumptions will be accurate. As the determination of these estimates requires the exercise of judgment, actual results may differ from those estimates, and such differences may be material to our condensed consolidated financial statements. ~~The description~~There have been no material changes to the application of critical accounting policies ~~is included~~disclosed in our ~~Annual Report on~~2020 Form ~~10-K for the fiscal year ended January 28, 2017.~~10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have market risk exposure related to interest rates and foreign currency exchange rates. Market risk is measured as the potential negative impact on earnings, cash flows or fair values resulting from a hypothetical change in interest rates or foreign currency exchange rates over the next year.

~~Interest Rate Risk~~

~~We hold available-for-sale investments. Our results of operations are not materially affected by~~There have been no material changes in ~~market interest rates. Also, as~~our primary risk exposures or management of ~~October 28, 2017, we did not have borrowings under our Credit Facility and, consequently, did not have any material exposure to interest rate~~ market risks ~~during or at the end of this period. However, as any future borrowings under~~from those disclosed in our ~~Credit Facility will be at a variable rate of interest, we could potentially be impacted should we require significant borrowings in the future, particularly during a period of rising interest rates.~~2020 Form 10-K.

~~Foreign Currency Exchange Risk~~

The functional currency of Town Shoes is CAD. As USD is our reporting currency, we are required to translate the investment in and note receivable from Town Shoes into USD balances. Each quarter, the income or loss from Town Shoes is recorded in USD at the average exchange rate for the period. The investment in and note receivable from Town Shoes is translated in USD at the exchange rate prevailing at the balance sheet date. As we have designated the note receivable from Town Shoes as an investment of a long-term investment nature, we record the translation gains and losses arising from changes in exchange rates in other comprehensive income. In anticipation of funding the future purchase of the remaining interest in Town Shoes, we hold $100 million CAD in available-for-sale securities denominated in CAD, with any foreign currency exchange gains or losses recorded within other comprehensive income. A hypothetical 10% movement in the CAD exchange rate could result in a $14.8 million foreign currency translation fluctuation, which would be recorded initially in other comprehensive income.

~~We currently do not utilize hedging instruments to mitigate foreign currency exchange risks.~~

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We, under the supervision and with the participation of our management, including ~~the~~our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures ~~as such term is~~(as defined in ~~Exchange Act~~ Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded, as of the end of the period covered by this ~~report,~~Form 10-Q, that such disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

No change was made in our internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d -15(e), during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information set forth in Note ~~13,~~ 11, Commitments and Contingencies - Legal Proceedings, of the Condensed Consolidated Financial Statements of this ~~Quarterly Report on~~ Form 10-Q is incorporated herein by reference.

Item 1A. Risk Factors

~~The following risk factor supplements our~~As of the date of the filing, there have been no material changes to the risk factors as set forth in Part I, Item ~~1A, of our Annual Report on Form 10-K for the fiscal year ended January 28, 2017:~~

~~The planned acquisition of Town Shoes could disrupt our ongoing business and adversely impact our results of operations.~~

During the first half of fiscal 2018, we intend to exercise the call option to purchase the remaining interest in Town Shoes. We may not succeed in executing the acquisition on time, within budget, or at all. The acquisition of Town Shoes may disrupt our business or divert the attention of our management. Achieving the expected benefits depends in large part on our successful integration of Town Shoes' operations, systems and personnel with our own in a timely and efficient manner. We cannot ensure that all of our integration efforts will be completed on a timely basis or as planned. Our operating results or

financial condition may be adversely impacted by pre-existing claims or liabilities, both known and unknown. In addition, the integration process may strain our financial and managerial controls and reporting systems and procedures and may also result in the diversion of management and financial resources from core business objectives. Our ability to successfully operate Town Shoes in Canada may be adversely affected by political, economic and social conditions beyond our control, local laws and customs, and legal and regulatory constraints, including compliance with applicable anti-corruption and currency laws and regulations. Risks inherent1A., Risk Factors, in our existing and future operations also include, among others, the costs and difficulties of managing operations outside of the United States, suffering possible adverse tax consequences from changes in tax laws or the unfavorable resolution of tax assessments or audits, and greater difficulty in enforcing intellectual property rights. Additionally, foreign currency exchange rates and fluctuations thereof may have an adverse effect on our financial results. ~~There can be no assurance that we will successfully integrate our businesses or that we will realize the anticipated benefits of the acquisition after we complete our integration efforts.~~2020 Form 10-K.


~~Item 2.~~	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On August 17, 2017,, the Board of Directors authorized the repurchase of anadditional~~$500~~ $500 million of Class A ~~Common Shares~~common shares under our share repurchase program, which was added to the $33.5 million remaining from the previous authorization. The share repurchase program is subject to the ABL Revolver and Term Loan restrictions and may be suspended, modified or discontinued at any time, and we have no obligation to repurchase any amount of our common shares under the program. ~~Shares~~Any share repurchases will be ~~repurchased~~completed in the open market at times and in amounts considered appropriate based on price and market conditions.

The ~~following table sets forth~~ABL Revolver and the ~~Class A Common Share repurchases during~~Term Loan each contain customary covenants restricting our ability to pay dividends or repurchase stock. We are restricted from paying dividends or repurchasing stock until the ~~most recent quarter:~~third quarter of fiscal 2021 at the earliest, after which certain limitations apply. We currently do not anticipate paying dividends or repurchasing additional shares under our share repurchase program.

(a)
Total Number of Shares Purchased

(b)
Average Price Paid per Share

(c)
Total Number of Shares Purchased as Part of Publicly Announced Programs

(d)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs
(in thousands, except per share amounts)
July 30, 2017 to August 26, 2017 —
$ —
—
$ 533,469
August 27, 2017 to September 30, 2017⁽¹⁾
171
$ 19.52
500
$ 524,094
October 1, 2017 to October 28, 2017 —
$ —
—
$ 524,094
171
$ 19.52
500


~~(1)~~	The total number of shares repurchased includes shares repurchased as part of publicly announced programs (the average price paid per share includes any broker commissions) and shares withheld in connection with tax payments due upon vesting of employee restricted stock awards.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits



Exhibit No.		Description
~~3.1~~31.1*		~~Amended and Restated Articles of Incorporation of DSW Inc. dated November 1, 2013. Incorporated by reference to Exhibit 3.1 to DSW's Form 8-K (file no. 001-32545) filed November 4, 2013~~.
~~3.2~~	~~Amended and Restated Code of Regulations of the registrant. Incorporated by reference to Exhibit 3.2 to Form 10-K (file no. 001-32545) filed April 13, 2006~~.
~~4.1~~	~~Specimen Class A Common Shares Certificate. Incorporated by reference to Exhibit 4.1 to Form 10-K (file no. 001-32545) filed April 13, 2006.~~
~~10.1~~	Revolving Credit Facility Credit Agreement, dated August 25, 2017, by and among DSW Inc., as designated borrower and guarantor, and certain financial institutions named herein, as lenders, and PNC Bank, National Association, as administrative agent. Incorporated by reference to Exhibit 10.1 to Form 8-K (file no. 001-32545) filed August 31, 2017.
31.1*	Rule 13a-14(a)/15d-14(a) Certification - Principal Executive Officer.
31.2*		Rule 13a-14(a)/15d-14(a) Certification - Principal Financial Officer.
32.1**		Section 1350 Certification - Principal Executive Officer.
32.2**		Section 1350 Certification - Principal Financial Officer.
101*		~~XBRL Instance Documents~~The following materials from the Designer Brands Inc. Quarterly Report on Form 10-Q for the quarter ended July 31, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations; (ii) Condensed Consolidated Statements of Comprehensive Income (Loss); (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Shareholders’ Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements.
104*		Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101.

* Filed herewith

** Furnished herewith

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

~~DSW~~DESIGNER BRANDS INC.

Date:

~~November 22, 2017~~August 31, 2021

By:

/s/ Jared Poff

Jared Poff

~~Senior~~Executive Vice President and Chief Financial Officer

(Principal Financial ~~and Accounting~~ Officer and duly authorized officer)



~~Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)~~Title of ~~the Securities Exchange Act~~each class	Trading Symbol	Name of ~~1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.~~ þ ~~Yes~~ o Noeach exchange on which registered
Class A Common Shares, without par value	DBI	New York Stock Exchange



þ☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



~~DSW~~DESIGNER BRANDS INC.
(Exact name of registrant as specified in its charter)



Not Applicable
(Former name, former address and former fiscal year, if changed since last report)



		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations		1
Condensed Consolidated Statements of Comprehensive Income (Loss)		2
Condensed Consolidated Balance Sheets		3
Condensed Consolidated Statements of Shareholders' Equity	4
Condensed Consolidated Statements of Cash Flows		45
Notes to the Condensed Consolidated Financial Statements		56
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		1817
Item 3. Quantitative and Qualitative Disclosures About Market Risk		2426
Item 4. Controls and Procedures		2526
~~Part~~PART II. OTHER INFORMATION
Item 1. Legal Proceedings		2526
Item 1A. Risk Factors		2526
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		2627
Item 3. Defaults Upon Senior Securities		2627
Item 4. Mine Safety Disclosures		2627
Item 5. Other Information		2627
Item 6. Exhibits		27
Signature		28



	Three months ended						Nine months ended
	October 28, 2017			October 29, 2016			October 28, 2017			October 29, 2016
Net sales	$	708,308		$	696,616		$	2,079,819		$	2,036,827
Cost of sales	(501,591		)	(484,836		)	(1,480,901		)	(1,433,829		)
Operating expenses	(151,772		)	(147,412		)	(454,093		)	(446,696		)
Goodwill and intangible assets impairment charges	(82,701		)	—			(82,701		)	—
Change in fair value of contingent consideration liability	31,178			(1,469		)	28,926			(5,080		)
Operating profit	3,422			62,899			91,050			151,222
Interest expense	(166		)	(57		)	(260		)	(156		)
Interest income	768			539			2,084			1,782
Interest income, net	602			482			1,824			1,626
Non-operating income (expense)	(121		)	80			(2,304		)	344
Income before income taxes and income from Town Shoes	3,903			63,461			90,570			153,192
Income tax provision	(1,496		)	(25,626		)	(35,510		)	(60,420		)
Income from Town Shoes	1,630			1,128			543			1,237
Net income	$	4,037		$	38,963		$	55,603		$	94,009
Basic and diluted earnings per share:
Basic earnings per share	$	0.05		$	0.48		$	0.69		$	1.15
Diluted earnings per share	$	0.05		$	0.47		$	0.69		$	1.14
Weighted average shares used in per share calculations:
Basic shares	80,112			82,026			80,215			82,011
Diluted shares	80,647			82,537			80,699			82,643



	October 28, 2017			January 28, 2017			October 29, 2016
ASSETS
Cash and cash equivalents	$	149,485		$	110,657		$	60,962
Short-term investments	180,066			98,530			78,512
Accounts receivable	19,102			18,456			20,334
Accounts receivable from related parties	1,315			550			1,029
Inventories	546,553			499,995			562,701
Prepaid expenses and other current assets	25,445			31,074			24,566
Prepaid rent to related parties	—			4			13
Total current assets	921,966			759,266			748,117
Property and equipment, net	358,154			375,251			381,218
Long-term investments	—			77,904			76,126
Goodwill	25,899			79,689			77,208
Deferred income taxes	35,284			14,934			21,103
Long-term prepaid rent to related parties	688			768			795
Equity investment in Town Shoes	7,180			15,830			17,996
Note receivable from Town Shoes	60,249			53,121			50,579
Intangible assets	3,135			35,108			38,243
Other assets	19,023			16,605			20,530
Total assets	$	1,431,578		$	1,428,476		$	1,431,915
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable	$	193,607		$	185,497		$	160,621
Accounts payable to related parties	706			774			641
Accrued expenses	141,990			130,334			143,653
Total current liabilities	336,303			316,605			304,915
Non-current liabilities	141,752			141,179			144,654
Contingent consideration liability	4,962			33,204			58,923
Total liabilities	483,017			490,988			508,492
Commitments and contingencies
Shareholders' equity:
Common shares paid-in capital, no par value; 250,000 Class A Common Shares authorized; 85,346, 85,038 and 84,875 issued, respectively; 72,255, 72,447 and 72,635 outstanding, respectively; 100,000 Class B Common Shares authorized, 7,733 issued and outstanding	957,960			946,351			941,485
Preferred shares, no par value; 100,000 authorized; no shares issued or outstanding	—			—			—
Treasury shares, at cost, 13,091, 12,591 and 12,240 outstanding, respectively	(325,906		)	(316,531		)	(309,229		)
Retained earnings	354,315			346,602			332,051
Basis difference related to acquisition of commonly controlled entity	(24,993		)	(24,993		)	(24,993		)
Accumulated other comprehensive loss	(12,815		)	(13,941		)	(15,891		)
Total shareholders' equity	948,561			937,488			923,423
Total liabilities and shareholders' equity	$	1,431,578		$	1,428,476		$	1,431,915



	Preliminary Purchase Price as of March 4, 2016			Adjustments			Final Purchase Price as of January 28, 2017
	(in thousands)
Purchase price:
Cash consideration	$	60,411		$	(635	)	$	59,776
Contingent consideration	56,000			(2,645		)	53,355
	$	116,411		$	(3,280	)	$	113,131
Fair value of assets and liabilities acquired:
Accounts and other receivables	$	1,623		$	(287	)	$	1,336
Inventory	30,152			18			30,170
Other current assets	191			335			526
Property and equipment	1,221			22			1,243
Goodwill	54,785			(995		)	53,790
Intangible assets	41,301			(2,600		)	38,701
Accounts payable and other long-term liabilities	(12,862		)	227			(12,635		)
	$	116,411		$	(3,280	)	$	113,131



	Nine Months Ended October 29, 2016
	(in thousands)
Net cash provided by operating activities, as previously reported	$	110,635
Eliminated the excess tax benefits related to stock-based compensation	124
Net cash provided by operating activities, as adjusted	$	110,759
Net cash provided by investing activities, as previously reported	$	8,310
Eliminated the decrease in restricted cash	(2,407		)
Net cash provided by investing activities, as adjusted	$	5,903
Net cash used in financing activities, as previously reported	$	(90,478	)
Eliminated the excess tax benefits related to stock-based compensation	(124		)
Net cash used in financing activities, as adjusted	$	(90,602	)
Net increase in cash and cash equivalents, as previously reported	$	28,467
Eliminated the impact of the decrease in restricted cash	(2,407		)
Net increase in cash, cash equivalents, and restricted cash, as adjusted	$	26,060
Cash and cash equivalents, beginning of period, as previously reported	$	32,495
Included restricted cash	7,676
Cash, cash equivalents, and restricted cash, beginning of period, as adjusted	$	40,171
Cash and cash equivalents, end of period, as previously reported	$	60,962
Included restricted cash	5,269
Cash, cash equivalents, and restricted cash, end of period, as adjusted	$	66,231



	Nine months ended October 28, 2017
	Stock Options		RSUs		PSUs		DSUs
	(in thousands)
Outstanding - beginning of period	3,799		351		250		311
Granted	1,756		292		263		85
Exercised / vested	(151	)	(82	)	(50	)	(46	)
Forfeited / expired	(426	)	(85	)	(5	)	—
Outstanding - end of period	4,978		476		458		350


~~PART I.~~	~~FINANCIAL INFORMATION~~



	October 28, 2017
	Total		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and cash equivalents	$	149,485	$	149,485	$	—	$	—
Short-term investments	180,066		527		179,539		—
	$	329,551	$	150,012	$	179,539	$	—
Financial liabilities -
Contingent consideration liability	$	4,962	$	—	$	—	$	4,962
	$	4,962	$	—	$	—	$	4,962



	DSW segment		ABG segment	Other		Total
	(in thousands)
Three months ended October 28, 2017
Net sales	$	654,587	31,059	22,662		$	708,308
Gross profit	$	202,267	7,130	(2,680	)	$	206,717
Three months ended October 29, 2016
Net sales	$	639,136	36,154	21,326		$	696,616
Gross profit	$	203,978	7,850	(48	)	$	211,780
Nine months ended October 28, 2017
Net sales	$	1,907,753	106,377	65,689		$	2,079,819
Gross profit	$	579,455	24,066	(4,603	)	$	598,918
Nine months ended October 29, 2016
Net sales	$	1,866,096	114,738	55,993		$	2,036,827
Gross profit	$	573,283	25,880	3,835		$	602,998



	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Programs	(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs
	(in thousands, except per share amounts)
July 30, 2017 to August 26, 2017	—	$	—	—	$	533,469
August 27, 2017 to September 30, 2017⁽¹⁾	171	$	19.52	500	$	524,094
October 1, 2017 to October 28, 2017	—	$	—	—	$	524,094
	171	$	19.52	500