Good day, and welcome to the Designer Brands Inc. Fourth Quarter 2024 Earnings 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 and 52-week periods ended February 1, 2025, to the 14-week and 53-week period ended February 3, 2024. Please note, that the financial results that we will be referencing during the remainder of today's call excludes 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 constitute 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; and Jared Poff, Chief Financial Officer. Now, let me turn the call over to Doug.

Good morning, and thank you everyone for joining us. I'd like to begin by saying a special thank you to our associates for their continued hard work and dedication to Designer Brands throughout the year. We were pleased to return to positive comps in the fourth quarter of fiscal 2024 for the first time in nine quarters as results improved throughout the year with our transformation taking a greater hold. In the fourth quarter given the inclusion of the 53rd week last year, we saw a 5% year-over-year decline in total sales. Excluding the 53rd week, our comps were up 1%. For the full year, total company sales were down roughly 2% to last year and comps were down 1.7% in line with our revised guidance. We also delivered full year adjusted EPS of $0.27 at the upper end of our revised guidance range of $0.10 to $0.30. As I reflect upon our performance this year, the improvement we saw was a direct result of our commitment to executing on those initiatives within our control. This included decisive actions to refresh our leadership team, revitalize and modernize our assortment, optimize our marketing, right size our Brand Portfolio organization and continuously improve our customers omnichannel experience. Over the last 1.5 year, we've updated our leadership team, naming a new President of DSW, a new Brand's President, a new Chief Marketing Officer, and a new Head of Merchandising to reinvigorate our teams, implement new ways of working and bring in expertise we were previously lacking. We've also made considerable progress in revitalizing our assortment. We ended 2024 with a more relevant and balanced assortment that includes more athleisure than ever before, increasing our penetration by five percentage points and grabbing market share. We also rekindled and expanded our relationship with our top…

Thank you, Doug and good morning everyone. We were pleased with the results from the fourth quarter reporting positive comps for the first time since Q3 of 2022 and continued to focus on our financial improvement throughout the year. As noted in our earnings press release, we changed our financial statement presentation related to expenses associated with distribution and fulfillment and store occupancy for the U.S. Retail and Canada Retail segments. These expenses were previously included within cost of sales and are now included within operating expenses in order to present all of our operating segments on a consistent basis. Included in our earnings press release are schedules showing the impact of these reclassifications for each quarter for fiscal 2023 and 2024. We also changed the presentation of segment performance by including an operating profit measurement in addition to the previously reported gross margin measurement for our reportable segments. We have restated quarterly and annual historical results to be on a comparable basis and our remarks will be based on this restated basis. Let me provide a bit more detail on our fourth quarter and full year financial results. For the fourth quarter of fiscal 2024, net sales of $714 million were up 0.5% on a 13-week comp basis and due to the 53rd week in the fourth quarter of 2023, net sales were down 5.4% versus the prior period as reported. For the full year of fiscal 2024, net sales of $3 billion were down 1.7% on a 52-week comp basis and down 2.1% versus last year inclusive of the 53rd week. In our U.S. Retail segment, comps were up 0.7% in the fourth quarter. We saw positive comps across the majority of our footwear categories with the strongest performance in kids, athletic, accessories, namely socks and women's dress.…

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

Great. Good morning, and thanks for taking my question. Just wanted to hear, could you tell us a little bit more on the quarter, the fourth quarter? How much did you see athleisure growth, and maybe comment a little bit what you saw in terms of Nike's performance and DSW as you lapped, the brand's return at this point. And then maybe, could you elaborate on I think you, I mean, you mentioned that you expect first quarter sales to be down versus last year. Any details on what you're seeing quarter-to-date, then what does that imply for your like expectation of the ranging of how much they can be down in the first quarter? Thank you.

Yes, thanks for your question, Mauricio. I'll start and then I'll ask Jared, to elaborate on the second part of the question. As it relates to athleisure, I mean as you heard, we saw a significant increase in the penetration of that business. A lot of that is driven obviously through the athletic brands. We were really pleased in particular with the top eight brands, which as we said, had a 25% increase on the full year basis. So that trend that we've seen continuing, is definitely a tailwind for us. We feel really good about that. Part of that is to offset some of the reliance on the seasonal businesses. We had a 900 basis points decrease in the boot category as an example. So again, the team's done a really nice job of kind of balancing that. I would say as it relates to Q1, we don't comment specifically in the quarter that we're in. But as we said, we have started out the year, a little slower than anticipated. We're focusing on controlling what we could control. I think there's certainly a lot of uncertainty out there in the macro environment just given rising prices, less discretionary income in the lots of tariff conversation on the overall kind of sentiment. So that is incorporated into our guidance that we provided for '25. But I'll let Jared elaborate.

Yes, I mean the only thing I would add to that, Mauricio, is that while our initial budget, and what we were seeing coming out of Q4, certainly showed year-over-year growth. As I mentioned in my comments, given what we've seen so far, we are now seeing a trending towards probably Q1, being a bit below last year's Q1. And so that's kind of what we've put in there, when we put our guidance together. What we are anticipating is that that continues to improve, as we move throughout the year. But certainly Q1, has started off more challenging than what we thought it would be.

Understood. And then, just could you give us a sense of how you're thinking about gross margin for the year, and SG&A dollar growth? I'm particularly interested, could you maybe explain a little bit more too about, the promotional strategy look, so I'm having a little bit of a hard time understanding like, if you're going to be more promotional, or less promotional. Just trying to understand that. And again, the implications for gross margin and SG&A dollar growth? Thank you.

Yes, yes I'll say, just from the financial mechanics, our current guide and the way we built the budget, has our promotional activity actually giving us good news, or leverage in the year to our gross margin rate. And that's primarily driven, by the efforts that we talked about on inventory availability. A lot of the work that we did with the help of McKinsey and our own analysis. Showed us where we had opportunities even on existing traffic patterns, to drive higher conversion just given store availability and kind of what had happened with our digital orders being pulled out of stores, so on and so forth. So we had planned the year relatively flattish, from a gross profit rate standpoint, but that's helping to offset some continued pressure on our IMU, from continued growth in athletic and national brands, being offset by a reduction in promotions. All that being said, we are certainly starting off Q1, a bit more challenging. We don't want to end with excess inventory, so we'll always be measuring that, but that's kind of how we've positioned that. To answer your second question on the SG&A, there's about $50 million being added over last year's SG&A, primarily anchored on those three items that, I talked about in my remarks. The West Coast Logistics Center, which is brand new to the infrastructure, but really necessary to support that initiative. The bonus or management incentive plan, and then annualizing Rubino.

Got it. So I guess like, if I take that into consideration, like it seems like the midpoint of the revenue guidance, kind of like maybe just modest operating margin expansion. Is that the right way to think about it?

Yes. I think that's spot on.

Understood. Thank you so much.

Thank you.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Doug, for any closing remarks.

I'd like to end where I started, by again just expressing gratitude to the DBI team, for their continued hard work and dedication, and thanks to all of you who joined us today. We look forward to continuing to update you on our progress, as we advance through the year. Thank you.

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