Good morning and welcome to the Designer Brands Incorporated third quarter 2022 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Jesse Miller. Please go ahead.

Good morning. Earlier today, the company issued a press release comparing results of operations for the 13-week period ended October 29, 2022 to the 13-week period ended October 30, 2021. 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, Jared Poff, Chief Financial Officer, and Doug Howe, President of DSW. Now let me turn the call over to Roger.

Good morning and thank you everyone for joining us today. We posted another consecutive quarter of solid results and made material progress on our brand-building journey. We ended the quarter with comparable sales up 3% compared to the third quarter of 2021, which was on top of strong comp net sales growth last year of 41%. We are incredibly proud of these results as we lapped a record third quarter in 2021 and invite you to review our earnings infographic on our Investor Relations site that highlights some of these accomplishments. Notably, we made tangible progress against our long term plan of doubling sales of our own brands by 2026, while also maintaining our sales levels of national brands as we continue to strengthen relationships with our top partners. As you know, our owned brand strategy will continue to be the key driver of our growth over the next five years as we have the unique ability to intimately understand our customers so we can design, source and sell the products they love. We’re excited to share that in the third quarter, owned brand sales grew 25% compared to the same period last year. Our direct-to-consumer sales through our retail stores and websites delivered a 33% increase to last year and wholesale distribution also grew at 8%. What makes this even more impressive, this growth is coming at a time when the industry is flooded with inventory. While we see this inventory pressure across the industry, our ability to self-liquidate excess product through our own retail clearance section is a key differentiator of our unique business model that gives us confidence in our ability to continue to build our own brands’ penetration and extract as much margin as possible along the way. Doug will dive more into our owned brand…

Thank you Roger, and good morning everyone. I want to talk first about the incredibly exciting developments and milestones we achieved in this third quarter. Our journey as a brand-builder is continuing at an exciting clip and we continued to deliver against our long term strategy of doubling owned brands’ net sales by 2026 and maintaining national brands. Designer Brands’ strategic differentiator is the unique synergies between the brands we build and our best-in-class retail infrastructure. We have a unique ability to connect with our customers and identify their needs and present them with the widest assortment of brands they love across a highly developed and in-place omni infrastructure. In the quarter, our owned brands represented 27% of DBI revenue compared to 22% in the third quarter last year. This puts us well on our way to our goal of making our owned brands approximately one-third of our total revenue by 2026. That is a huge accomplishment on our path to elevating DBI’s status as a brand builder. I want to specifically highlight two of these owned brands and some exciting progress that we’ve made in the quarter. We are very enthusiastic about the momentum we are seeing with Crown Vintage, a brand that is vintage-inspired at its core and free-spirited in its [indiscernible], with shoes and accessories that invite customers to embrace their individuality. In the quarter, we launched a collaboration partnership with Emma Roberts for our Crown Vintage brand which included a robust marketing campaign across national and social media channels. This campaign received over 6 billion press impressions and 120 million social media impressions and was the strongest social celebrity content we have ever had. You can see some of the beautiful campaign imagery on our Q3 2022 infographic. As part of this launch, we hosted pop-up…

Thank you Doug, and good morning everyone. Please note that the financial results that we will reference during the remainder of today’s call excludes certain adjustments recorded under GAAP unless specific otherwise. For a complete reconciliation of GAAP to adjusted earnings, please reference our press release. I want to echo Roger and Doug’s comments around the pride we have in our third quarter results. We delivered on our strategic goals of owned brand growth and the reestablishment of our critically important clearance business and customer while also seeing the fruits of our change and diversified business model come to bear. We put up numbers that demonstrated the power of this evolved Designer Brands, and I couldn’t be prouder of what the teams continue to accomplish. Let’s first review our results. For the third quarter, sales increased 1.4% to $865 million compared to the same quarter of 2021. For the third quarter, total comps were up 3% on top of a strong 40.8% comp last year. Within this growth, we saw positive sales across all of our segments. U.S. retail comps for the third quarter were up 1.1% compared to up 43.9% in the prior year. [Indiscernible] comps were up 27% compared to a gain of 50.4% in the prior year, and Canada continues to see strong growth and posted comps of 18.8% for the quarter on top of 15.2% in the same quarter of 2021. Gross profit for the quarter was $285.8 million. As planned and as previously communicated, our consolidated gross profit rate for the quarter decreased to last year as we strategically and intentionally reestablished our clearance business and won back that lapsed clearance shopper, while coming in meaningfully above 2019 given the structural changes we’ve made in our business. Our gross profit rate for the quarter came…

[Operator instructions] Our first question comes from Jay Sole from UBS. Please go ahead.

Great, thank you so much. Roger, if you could just talk about the change that you’ve seen in the competitive environment and consumer behavior into the fourth quarter. Maybe just tell us a little bit more about the gross margin change in 4Q that’s leading to the change in the guidance for the full year and what you expect in the fourth quarter relative to the third quarter. Do you think the fourth quarter will be a little bit more competitive than what you’ve seen so far or do you see them about the same, or do you see it maybe getting a little bit better? Thank you so much.

Thanks Jay. I think there are two major macro trends that we’ve experienced throughout Q3 that we are clearly, I think with our guidance, showing that that’s our expectation, that these trends will continue into Q4, and that is when you look at how the consumer is responding, they are looking for value, and obviously inflation has been a big driver of that. Doug can talk to this, but our DSW clearance business, which was planned to be up in a material way, it posted a 28% comp. The customer is voting that they want value pass, so that’s number. Then the second one is just the amount of excess inventory that we see - again, what’s out in the market and the amount of items being sold into the secondary goods market, and obviously you know we play there and try and sell things to some of those people, and when you see what offers are being given on product you have, it’s clear there is excess inventory. I’m not quoting, I’m directionally from the things that we get, when you look at the three big athletic players, the swoosh folks up over 60%, Skechers up over 40%, Adidas up over 50% in inventory, those goods are being pumped into the market and with their direct-to-consumer plays, that puts pressure on that athletic category in particular. Those are the two big things that we have seen happen, and we don’t see that slowing down as we go through Q4.

Got it, and then maybe if you can just talk about this, the slowdown that happened in the second half of October and the first half of November, there’s some discussion if it was weather related, maybe the election was distracting to people, perhaps the compares were pretty tough from last year because of the pull-forward that happened because of supply chain issues and of omicron. Do you think that’s really the reason that we’ve seen the slowdown, or is it more the consumer is weakening because of inflation? Where do you stand on that?

You know, we don’t really allow our team to talk about weather, but whenever you look at how our business performed, and our sandal business was really strong in Q3, boots achieved our goals but it was still a negative comp for the quarter, so. You know, our sandal business was really good, so there was some weather but at the end of the day, it comes back to those two things I mentioned. The customer is clearly voting they are looking for value, and we are seeing it in what they’re buying from us; and then the second piece is there is just a lot of inventory that’s out in the market that is, frankly, competitive because those brands are competing with us through their D2C channels.

Got it, okay. Thank you so much.

You’re welcome, thanks.

Again if you have a question, please press star then one. Our next question comes from Gabby Carbone from Deutsche Bank. Please go ahead.

Hi, good morning. Thank you for taking my questions. Just wanted to circle back to that clearance customer again, that’s been coming back into your stores. Just curious if you can dig into how that’s impacting traffic and units per transaction. Thank you.

Yes, hi Gabby, this is Doug. Again, we had talked about the fact that this was an opportunity for us, obviously, with regards to regaining that clearance customer back, and as we said in the transcript, we had a 28% increase in clearance sales in the quarter, so again that’s actually a model that we can lean into. We definitely saw that accelerating as we moved throughout the quarter, so to Roger’s point, customers are definitely migrating more towards value, so there’s favorability obviously in our model with regards to the clearance customer. Then the other thing that is a key differentiator, which I couldn’t be more proud of, is the results that we had with our owned brands. Obviously those connote significant value and those generated 22% of our overall volume at DSW in the quarter, and it was over a 30% increase, so those two factors we believe are going to be differentiators for us as we move forward, because again the customer is clearly focusing on value.

Gabby, this is Roger. I think even to Jay’s question, if you think about what it is we do and how we respond to this, as Doug said, the big thing for us is lean into that clearance prop. Knowing that our customer comes to us, that’s sort of rooted in who we are from day one, I think it’s one more opportunity for us to pivot assortment and our thinking and leverage that as a way to compete and grow share, and then obviously leveraging all of our owned brands, especially the ones that are exclusive to DSW, is a way to continue to pass value to the customer. To Doug’s point in the script, where we’re talking about our owned brands growing at 25% year-over-year, that’s just remarkable, and that’s been our game plan for the last three years and it’s continuing to work. But the competitive landscape is different, and we’re going to keep leaning into those things that we’ve been doing now for the last three years.

Got it. I just had a quick follow-up. I was wondering if you can discuss how you’re planning maybe your brand portfolio outside of DSW over the next couple quarters as we’re continuing to see retailers plan inventory pretty conservatively for next year.

Yes, I don’t want to get into the forward-facing view until we give you some guidance for next year, but what we do know is that if you’re more conservative in your inventory plan, you always have the ability to chase upside. Right now, we’re dealing with the pain of the industry being over-inventoried, and we will not let that happen. I think we have a history and tradition of managing our inventories in a pretty tight manner, and that’s our approach as we move forward, is we will be much more conservative, I would say, in how we’re approaching our inventory positions specifically as we look at what we’re going to sell outside of our core DSW business and Shoe Company businesses.

Got it. Okay, well thank you very much for that color.

Thanks Gabby.

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 - I know we have a lot of associates, and I just want to recap. If you think about the big things you accomplished this quarter of growing your top line by 3%, and that’s on top of--remember, last year we grew our business by 41%, so there’s not a lot of folks I see out there in our space that had those kind of results for the third quarter. You grew our owned brands, meaning the things that we own and control, by 25%, and penetrated at 27% versus 22% last year - remarkable. Then you add into that our direct-to-consumer channels that grew by 33%, our gross margin rate up 370 BPs to where we were in 2019, and then just the amazing progress that Mary Jo and Nancy and the whole team up in Canada have demonstrated, growing 19% and grabbing huge market share. The strategies we’ve put in place over the last four or five years are working, and just keep doing what you’re doing and I can’t thank you enough. I hope everybody has a fantastic holiday. Talk to you soon. Thank you.

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