Good day and welcome to the Designer Brands Inc. 1Q 2021 Earnings Call. All participants will be listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Stacy Turnof. Please go ahead.

Good morning. Earlier today, the company issued a press release comparing results of operations for the 13-week period ending May 1st, 2021 to the 13-week period ending May 2nd, 2020. Please note that remarks made about the future expectations, plans, and prospects of the company constitute forward-looking statements. Results may differ materially due to various factors listed in today's press release and the company's public filings with the SEC. The company assumes no obligation to update any forward-looking statements. Joining us today are Roger Rawlins, Chief Executive Officer; and Jared Poff, Chief Financial Officer. Now, let me turn over the call to Roger.

Good afternoon and thank you everyone for joining us today. We're particularly proud of our first quarter performance and energized by our continued progress. We'd like to thank our associates for giving their best to our company and customers, helping us achieve our near-term goals. A recent internal associate survey confirms we continue to have a very engaged associate base, which has been critically important to our success. We're seeing notable progress against the roadmap we laid out in the second half of last year, and we are excited about what the future holds. Continued improvement, highlighted by a return to profitability for the first time since the onset of COVID bolsters our confidence. Sales have exceeded our initial expectations, and we achieved an exceptional first quarter gross margin rate. Inventory turns are improving and we saw continued robust performance in the athleisure category, while beginning to see strengthening results in our seasonal business. We continue to optimize the factors in our control that will maintain our momentum as the market continues to rebound. We have positioned our assortment to capture market share in athleisure, an area where we have been historically underpenetrated to the market and we're gaining share. Although our overall dress business remained depressed, our seasonal product sales significantly outpaced our initial expectations and the improvement in sales relative to inventory was a major contributor to the upside in our gross margin in the quarter. We remain in chase mode and continue to leverage our scale with key vendors. More importantly, we leaned on our vertical capabilities with our Camuto segment to give us an advantage in these categories by selectively increasing production at Camuto to support the demand that materialized. Our vertically integrated capabilities are a strategic differentiator for us and will enable our company to…

Thank you, Roger, and good afternoon, everyone. Trends continued to improve in the first quarter across all metrics, and we are very pleased with our performance. As Roger mentioned, we are becoming more optimistic as the vaccine rollout continues, infection rates are decreasing, and our customers are coming back into our stores more frequently. Our targeted marketing campaigns are yielding stronger results and consumer demand is beginning to show signs of recovery in categories that were especially depressed during COVID, including seasonal. Please note, the financial results that we will reference during the remainder of today's call, excludes certain adjustments recorded under GAAP unless specified otherwise. For a complete reconciliation of GAAP to adjusted items, please reference our press release. We are continuing to execute against our near-term priorities outlined last year, and we are seeing success build each quarter. First quarter was exemplary, as we exceeded our expectations across the board. This quarter, we saw our best comp performance and gross margin rate since the start of COVID, and we are pleased that we were able to return to profitability this quarter. Turning to our results. For the first quarter, sales increased 45.6% to $703.2 million, which included $15.5 million in intersegment revenue that is eliminated in consolidation. This was the best quarterly sales performance since COVID-19 began. During the first quarter, total comps were up 52.2% versus last year's 42.3% decline. For US retail, comps were up 56.3% during the first quarter versus down 42.4% last year. Similarly, first quarter comps were the best we have seen since the onset of COVID-19, and were driven by our continued pivot to athleisure footwear, a category in which we are historically underpenetrated. While still below 2019 levels, we saw sequential improvement in store traffic throughout the quarter. You have heard…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Steve Marotta with C.L. King & Associates. Please go ahead.

Good afternoon. Roger and Jared, congratulations on the accelerating trends.

Thank you.

I wanted to talk to you a little bit about and focus on Camuto. I think, Roger, you mentioned that 15 of the 25 best selling brands during the period were of the exclusive nature or vertical, if you said the penetration, please forgive me, I missed it. Can you talk a little bit about where that is right now? And where without giving -- I know you're not giving guidance for the balance of the year, but where do you think that penetration could go through the balance of the year, again, specific to Camuto and the benefits of the gross margin there? Thanks

Thanks, Steve. And it was 15 of our top 25 items. To make certain I was clear on that, and we're still in the high-single digit to low-double digit penetration around our owned brands. And we have aspirations, as you know, when we bought the business to take that to be closer to 30%, and that's the direction we're headed. And again, we're really excited about the progress and how we were able to chase business during the quarter and drive margins through the Camuto organization. So, it's working as we had planned. It's now time that the business has recovered to turn it on in a bigger way.

One additional question there. Has anything occurred during COVID to shorten your turnaround times specific to Camuto inside of DSW stores?

It is -- I would say there have been some things. The material changes are things we have on our road map where we can leverage some facilities that we have in Brazil and to test and learn and then go in a much bigger way and accelerate production. But those are things we're working on for the back half of the year. Those are not in place in a big way today, but that is the intent is speed, speed, speed is going to win, and that is what we've got to leverage Camuto -- leverage the DSW consumer to better inform our Camuto decisions.

That's really helpful. I’ll take the balance of my questions offline. Thank you.

Yes. Thank you.

Our next question comes from Gaby Carbone with Deutsche Bank. Please go ahead.

Hi. Good afternoon. Thanks for taking my question. So I was wondering if you could dig into store traffic levels, maybe a little bit more on how that progressed through the quarter, maybe what you're seeing here in May. And then maybe how do you view the opportunity for store productivity to get back to 2019 levels? Thanks.

Thanks, Gaby. And I would say what we saw and what we've been talking about is the sequential improvement, and that happened in the first quarter, and it happened throughout the quarter as we progressed. And our expectation is that that will continue through Q2 and the fall. So again, good progress. What I'm really excited about is, we knew we would not be getting after some of our, let's just say, consumers that we knew historically had shopped their stores that shots and arms had not taken place. So we've not really pushed a lot of our marketing campaigns targeting that consumer. And we've turned some of those things on in first quarter, and we love the response we're getting. So those are weapons that, frankly, we've not been able to deploy to date because we knew it would not be worth the spend. But those are all, I think, opportunities as we go through the back half of the year.

Got you. Thanks for that. And just a quick follow up. Are you dealing with any supply chain issues due to these like the ways of the ports that many retailers have been talking about?

I think our merchant and sourcing teams have done an amazing job of sort of managing around it. I would tell you, it is not easy. But our team has done a great job of opening up windows earlier, so that goods that perhaps might have been planned for later are hitting now. We're doing everything we can to manage it. It is more than a full-time job for many people. But I feel good about our inventory position versus the sales we have planned, and we'll do everything we can to keep working with our vendor partners. And this really is a big benefit of our organization because you are a large player. You move up closer or to the top of the line as goods do come in and get allocated. So again, I feel pretty good about our inventory position.

Great. Thank you so much for the color.

Yeah. Thanks, Gaby. Operator: [Operator Instructions] Our next question comes from Mauricio Serna with UBS. Please go ahead.

Hi. Good afternoon, and thanks for taking my question. I have a question, if you could maybe talk about the second quarter. I mean, you mentioned that you expect an improvement, and how should we think about that considering compared to a 2019 basis, first quarter sales were down around 19%. I mean how should we think about that for the second quarter? And also if you could talk a little bit more about the puts and takes into the gross margin expansion versus 2019? How much came from merchandise margins compared to occupancy and other cost inputs? Thank you.

Yes. Mauricio, I think, again, we're not providing future guidance, but we anticipate continued improvement in the business, just like what we have seen, the acceleration in Q1 and what we experienced in Q4 as well. So that's sort of the stair-step approach that we're envisioning for the balance of the year. As it relates to margins, there are a couple of things that I'm really proud of that we've done, leaning into these top 50 brands and having product that you know the consumer demands that you do not have to take markdowns on. That has been a big win for us getting after the owned brands in a meaningful way. And those things, again, margin, about 1,500 basis points better for us as an organization. So, continuing to drive that is going to improve the business. And it's really been exciting to be in a chase mode, which is sitting here looking at Jared and knowing what we went through last year, where it was the complete opposite of that. This is a lot more fun and creates much more margin opportunity on an upside.

Yes. One thing I will mention, Mauricio, is if you just look at our history and we're looking at the full year, fall tends to be a couple of hundred basis points lower, merchandise margins in general than spring, just given the categories and the promotional environment of the holiday time period. So again, we aren't giving guidance, but I do just point you to what history is for kind of our business model.

And Mauricio, I think it's important, too, that when you look at the assortment pivot we've made, and we have an athletic business that has historically run gross margin rates significantly below nonathletic footwear. We grew athletic by 87%. We are playing in a kids space that has historically had gross margin rates materially below nonathletic and athletic. And despite the fact that those have grown at 87% and 78%, as an organization, we still grew gross margin rates. And that is a huge -- I can't applaud enough, our design team, our merchant team, our planning team, our allocation team, our store team, our marketing team, for all working together to get the customer what they want, when they want it, and you can avoid markdowns. It's something I'm really, really proud of for our team.

Got it. Thanks a lot. Congratulations.

Thank you.

[Operator Instructions] Our next question comes from Dylan Carden with William Blair. Please go ahead.

Yeah. Hi. Thank you very much. Just curious as you're sort of thinking about getting Camuto more a part of the assortment here. Are there any changes to the strategy as it relates to the categories that you're going to move more into the assortment, or just sort of how you're thinking about the integration of that business kind of coming out of the pandemic?

Well, I think it's a great question. And yes, there is opportunity, especially when a certain brand decides to take their talents elsewhere. And we're going to look at how do we continue to be more at leisure like in the brands that we own and operate. And I think that's upside for us as an organization. There's open to buy to be had in that space. So that's an area in particular where we think we know we can do better. And then I would say the growth potential that we have with the Jennifer Lopez brand that we're going to relaunch later this year. We think there's -- from a fashion perspective, we think there's significant upside there. And Vince is still a very small part of the DSW brand. And doing things like what we're doing to create shop-in-shops for the big brands. Those are the kind of things we're thinking about that can help us grow Vince, like Jessica, JLO, Crown Vintage, Mix No. 6, all of those brands.

Excellent. Thank you very much.

Thanks, Dylan.

This concludes our question-and-answer session. I would like to turn the conference back over to Roger Rawlins for any closing remarks.

Thanks, everybody, for listening in today. And if you get a chance as a DSW consumer, please check out your emails. There's a great e-mail today, featuring our own CFO, Jared Poff, a great set of sneakers. So please go check out your e-mail from DSW, and really appreciate everybody listening. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.