Good morning, and welcome to the Designer Brands First Quarter 2024 Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I'd now like to turn the conference over to Dustin Hauenstein, Senior Vice President of Finance. Please go ahead.

Good morning. Earlier today, the company issued a press release comparing results of operations for the 13-week ended May 4, 2024 to the 13-week period ended April 29, 2023. Please note that the financial results that we will be referencing during the remainder of today's call exclude certain adjustments recorded under GAAP unless specified otherwise. For a complete reconciliation of GAAP to adjusted earnings, please reference our press release. Additionally, please note that remarks made about future expectations, plans and prospects of the company constitutes forward-looking statements. Results may differ materially due to the various factors listed in today's press release and the company's public filings with the SEC. The company assumes no obligation to update any forward-looking statements. Joining us today are Doug Howe, Chief Executive Officer; Jared Poff, Chief Financial Officer; and Andrea O'Donnell, Brands President. Now, let me turn the call over to Doug.

Thank you for joining us this morning. This quarter, we were pleased to deliver results in line with our expectations as we gain traction on our path to returning Designer Brands to growth. As a result of meeting our targets on both the top and bottom lines, we are also reaffirming our 2024 fiscal year guidance. As noted last quarter, we are confident that we have the right people and processes in place and believe that 2024 will continue to be a time of transition for Designer Brands as our refreshed leadership team implements thoughtful, strategic and operational improvements. We are seeing early signs that this refreshed focus is benefiting our organization. To that end, I would also like to thank our DBI associates for their ability to quickly adapt to new ways of working as we transform into a more efficient organization. Turning to this quarter's results, in the first quarter, sales were up almost 1% versus last year and we saw a 2.5% decline in comparable sales. These results were in line with our expectations and demonstrated sequential improvement from the fourth quarter of fiscal 2023. We anticipate that comps will continue to improve throughout fiscal 2024 as our new strategic initiatives, which we will discuss on this call, are further implemented. Our strategic changes also enabled us to expand gross margins in the first quarter by 80 basis points to 32.8%. This improvement was driven by strong inventory management, reduction in closeouts, and direct-to-consumer or DTC growth. During this turnaround year, we are continuing to look for ways to rationalize and size our cost based appropriately, streamline our operations and improve our efficiency. Let's first talk about our retail businesses and how we're progressing on our strategic pillars to drive growth. In our U.S. retail business, we…

Thank you for having me, Doug. It's a pleasure to be here today. Designer Brands first attracted me because of its unique combination of retail and brand. Since I joined the team, I have become even more excited by the opportunity, not least of which is because of the progress we are already making this year. As a veteran in this industry, I understand footwear brands' competitive advantages very well. My job here is to build and execute a portfolio strategy that focuses our resources and efforts over the next few years toward the strongest brands and the biggest ideas. Our brand portfolio presents an incredible opportunity to increase the profitability of DBI. So what are we doing? In the immediate term, our focus is on reducing costs, right-sizing the organization, increasing margins, streamlining and simplifying the way we work, and defining the role, purpose, and potential of the brands in our portfolio. We already have in place key competencies in design, sourcing, and logistics. So once we have re-engineered the operating model and built the foundations for profitable growth, I believe we will be well-positioned to invest and scale fast. Across our brands, I see a great opportunity to evolve our product ideation process, which will in turn improve adoption rates amongst our collections. We know that not all brands are created equal, and I have charged my team to be discerning. Carefully consider resource trade-offs and think critically about maximizing the long-term potential for our enterprise. Our goal is to build our foundation and refine our core competencies early, professionalizing our product strategy so we can easily grow and integrate further in the future. From next year, we will be executing on a strategy that aims to deliver growth in a number of ways. DSW-exclusive brands already have…

As you can tell, Andrea has many exciting perspectives that she has brought to our organization. And I am grateful to have her leadership and industry experience as we progress our own brand strategy both within and outside of DSW. We believe we are on solid footing as we enter the summer months with an increasingly fresh assortment every day that is a mix of our core offerings and vibrant on-trend seasonal assortment. We are welcoming back-lapse customers, increasing engagement with existing customers, and targeting new customers with personalized promotions. We continue to see a clear pathway to reach new audiences as we further grow the relevance of our own brands and DSW offerings. We will continue to leverage our differentiated platform to remain nimble and meet customers where they are. With that, I'll turn it over to Jared. Jared?

Thank you, Doug, and good morning, everyone. I am pleased with our first quarter financial results, which were in line with our expectations. Our disciplined execution delivered the improved results we had planned while we made headway on our strategic initiatives. I continue to be very pleased with the performance of our athletic and casual segments of the business as we flex our assortment to meet customer demand, something that will continue to anchor our strategy. Let me provide a bit more details on our financial results. For the first quarter of 2024, net sales of $746.6 million were up 0.6% versus the prior year as reported, and were down 2.5% on a 13-week comparable basis. As discussed last quarter, the shift in our fiscal calendar following our 53rd week fiscal 2023 will cause some variability between year-over-year growth and comparable sales growth in any given quarter. Our first quarter results are shifted ahead by one week on the calendar, which resulted in the comparable prior period year results dropping a softer week in early February and picking up a busier week in May. In our U.S. retail segment, comps were down 2.3% in the first quarter, a significant sequential improvement over the fourth quarter of fiscal 2023. As Doug outlined, we are happy with the continued strength we saw from our top national brands and more specifically, in our athletic and casual businesses. We performed relatively in line with the overall footwear market and were pleased to have ended the quarter stronger than we had started and to be continuing to see steady improvement in Q2 as expected. With athletic continuing to outperform, we think this also sets us up well as we move into the back-to-school season towards the end of Q2 and beginning of Q3. Our Canada…

[Operator Instructions] The first question comes from Mauricio Serna with UBS. Please go ahead.

Hi. Good morning, and thanks for taking my questions. Maybe if you could elaborate a little bit more on the comp sales trend throughout the quarter. It seems that things accelerated in April, so maybe if you could elaborate on that. And also, and what does that imply about May, considering that you say like it's roughly in line with the overall Q1? And then second, maybe if you could talk more about the impact of the Rubino acquisition in Canada. I mean, I would assume that would impact, in a way, your top-line expectations, so maybe you could give us a sense of - I mean, you mentioned the number of stores, but maybe like from a dollar perspective, like - just for us to get a sense of like how much that is impacting the Canada retail expectations? Thank you.

Yes, Mauricio, this is Doug. Thanks for your question. I'll take the first one, and then I'll hand it over to Jared for the Rubino question. Yes, I mean, we exited Q1 stronger than we entered it, as we said in the remarks. And again, we're seeing that trend continue through May. We feel really confident about, all the work that Lowe's is doing, specifically to elevate the assortment and to really lean into the athletic category, which, again, had a 15% increase in Q1. And that penetration only is stronger as we move into, obviously, back-to-school, which is, we think, a big opportunity for last year. So again, we're optimistic about that as we move through the quarter, but there was a sequential improvement in the fact that we exited the quarter, at a stronger rate than we entered it, and dramatically stronger than, obviously, the Q4 performance. So, we're pleased with the progress. And then, Jared?

Yes, and on the Rubino acquisition, so last year, 2023, they generated $47 million. This is in Canadian, $47 million of sales, and we bought them and will be registering three quarters of the year of sales in this year. So, we are expecting, like we mentioned, similar operating income contribution from Rubino as our entire - our Canadian segment. They look - feel, smell, taste just like our shoe company stores, and they basically are the shoe company just rebadged as Rubino serving Quebec.

Got it. Super helpful. And then, just a quick follow-up. On the SG&A, just maybe could you provide a little bit more detail on why the acceleration, I mean, high single-digit increase, trying to understand like if there's anything in particular, maybe is it related to timing or with the calendar shift? But, yes, any - additional detail on SG&A acceleration would be very helpful yes - as we model the next few quarters? Thank you.

Sure. Yes. So, we did mention in the comments, we did return to our normalized incentive comp posture this year. Last year, given the performance of the business, that was completely removed. You know, that in round numbers is just a little over $30 million. Our incentive comp goes to all employees in the company. And so, that is a net headwind that is pretty evenly dispersed across all four quarters. We did just execute reorganization, as we shared. That's resulting in this year around $12 million of savings. When you kind of look at year-over-year dollars, as far as being more than last year, right now, these two quarters, you know, we are living with more dollars being spent this year than last year, primarily in that incentive comp land, and a little bit in some marketing. When we get into next year or into the fall, that year-over-year dollar deleverage minimizes primarily, because marketing and selling expenses were higher last year in the fall than they were in the spring. So, that's why we're expecting - the overall SG&A rate to leverage slightly, especially as sales build into the fall. But those are the big drivers.

Understood. Very helpful. Thank you so much.

[Operator Instructions] This concludes our question-and-answer session. I would - just one moment. I see that we have a follow-up from Mauricio Serna from UBS. Please go ahead.

Great. Thanks. If I could just squeeze one in. If you could talk about maybe what you're seeing on the promotional environment on the U.S. retail business. I know you called out primarily the growth margin expansion that's coming from brands' portfolio. But maybe if you could talk about what you're seeing in the U.S. retail that would be very helpful? Thank you.

Yes. This is Doug. I'll take that. We definitely, we invested fewer markdowns than we did in Q4. And I would say we have some very early pilots in phase now, where we're trying to be more targeted with those offers. But I think at this point, we feel like it's pretty steady as she goes with regards to the promotional activity, acknowledging we're in a discretionary category. There's still a fair amount of uncertainty out there in the economy. So, we want to be prudent about how we're managing that. But we definitely saw some favorability with regards to how promotional we were versus Q4. And that's incorporated into our guidance.

All right. Thank you so much.

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

Well, thank you all for joining us today. And I just would like to reiterate one more time how much myself, and this entire leadership team appreciate all of our - DBI associates for their ability to adapt their new ways of working, as we transform the business. So again, thanks for your time. We look forward to updating you on our progress as we move throughout the balance of the year.

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