Good morning, and welcome to the Designer Brands First Quarter 2025 Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ashley Firlan, Investor Relations. Please go ahead.

Good morning. Earlier today, the company issued a press release comparing results of operations for the 13-week period ended May 3, 2025, to the 13-week period ended May 4, 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 the 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. Except as may be required by applicable law, 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. I'll now 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 first quarter. Over 1 year ago, we began to refresh our business, bringing in new leaders, modernizing our assortments, implementing a more compelling marketing approach and rightsizing our brand portfolio organization. We've moved decisively to reset and transform our business and our team to focus on the customer. We began to see the fruits of those changes materialize in the back half of fiscal 2024, posting 2 consecutive quarters of year- over-year adjusted operating income growth and the first positive sales comp at DSW in 9 quarters. Heading into fiscal 2025, we were confident in our plans to build on this momentum. However, as the macro environment has evolved rapidly, it has introduced increased uncertainty and reduced planning visibility, particularly around consumer behavior. We are responding with agility and adjusting accordingly to navigate these shifting dynamics. As a result of these dynamics, we experienced a softer start to the year with first quarter comparable sales declining 8%, directly reflecting continuing weakening in consumer sentiment. February was the weakest month of the quarter with unfavorable weather causing further challenges. We saw sequential improvement as the quarter progressed, and I am proud of our team's efforts to navigate through this unprecedented environment. Specifically, we have thoroughly evaluated our cost structure and implemented expense cuts, which helped to deliver a 6% reduction in our operating expenses for the quarter versus first quarter last year. In total for the year, we are implementing cuts that are expected to deliver between $20 million to $30 million in savings over the course of 2025 compared to last year. Jared will provide more…

Thank you, Doug, and good morning, everyone. Amidst a tough quarter, I want to commend our team for staying focused and executing against our strategic priorities. As Doug noted, our results came in softer than anticipated, reflecting the ongoing macro environment and pressure on consumer discretionary spending. Despite these headwinds, we remain committed to advancing our strategy. Let me provide a bit more detail on our first quarter financial results. For the first quarter of fiscal 2025, net sales of $687 million were down 8% and comps were down 7.8%. In our U.S. Retail segment, sales were down 7.7% with comps down 7.3%. Both in-store and online traffic were pressured through the period, but improved sequentially on a monthly basis. We also saw fewer returns during the quarter, which we believe underscores the strong work we've done with our assortment. Sales of our top 8 brands achieved a flat comp compared to the first quarter last year, performing much stronger than the balance of the assortment and increased penetration growing to 43% of sales from 40% last year. Our seasonal product remained pressured and even our strongest categories like athletic experienced compression with sales down 4%. In our Canada Retail segment, sales were down 2.9% in the first quarter compared to last year, with comps down 9.2%, primarily due to lower traffic due to the compressed consumer spending. Total sales benefited from the addition of the Rubino business, but also faced exchange rate headwinds, resulting in a decline in total sales versus last year. Finally, in our Brand Portfolio segment, total sales were down 7.9% to last year as most retailers in this space are approaching the year with the same level of conservatism that we are at DSW. However, thanks to the expense efficiency work that began last year,…

[Operator Instructions] Today's first question comes from Dylan Carden with William Blair.

Jared, I think you kind of addressed it there towards the end, but the $20 million to $30 million in savings related to the $50 million that you'd anticipate sort of increasing SG&A into this year. Can you kind of just speak to the relationship between those 2 numbers and where you're cutting?

Yes, for sure, Dylan. So initially, when we started the year, we knew we had close to a $30 million headwind coming our way because we didn't have a bonus accrued for FY '24. And of course, we start every year assuming we're going to be able to pay a bonus. The way that, that materialized in '24 was we were accruing it fully in Q1, partially in Q2, but then we reversed it all in Q3. And so for the year, we had 0, but it did show up as part of our expense structure throughout that year last year. Given the complete turnaround of the business this year in Q1, there was no bonus accrual at all. So that provided about $10 million, just under $10 million of year-over- year favorability in expenses in Q1 of this year. But as I mentioned in the script, we will see the reverse of that or headwinds of that come out in Q3 when we had our bonus reversal last year get reversed. So like-for-like, that incremental expenses that we referenced last year at our original guidance related to bonus is not going to be there. In addition, we have implemented cuts of about $20 million to $30 million below last year. So while we're not giving guidance for the year, if you do look at our SG&A for the full year, the cuts we've made, we believe, will result in $20 million to $30 million below that number for all of 2025.

And then just -- can you just add a little bit more on the reversal in the Canadian and brand portfolio, and particularly on sort of like the comp side for the brand portfolio. Was that mostly Keds? And in Canada, it's been weak. Some other Canadian retailers are talking about that situation with particularly sort of the adjustable mortgages getting better. Just kind of what you're seeing between those 2 segments?

Yes. Thanks, Dylan. This is Doug. I mean on the Canadian market, I'd say a lot of the consumer sentiment that we're seeing in the U.S. is obviously very consistent with what the Canada business is seeing as well. Just downward pressure on the volatility and the uncertainty in that environment has driven the negative comp. We had a little bit of noise in there, as you know, because Rubino was not in our last year comp. But again, very similar kind of customer sentiment that's happening in the U.S. is also happening in Canada. And then on the brand side, I mean, it was a little bit of a mixed bag. Obviously, the Topo business continues to be really strong. It's up 84% in the quarter. And then as I said in the script, Keds had a little bit of headwinds on the top line, but that was because we were up against some liquidation for last year, and they actually had quite an expansion on the gross margin side.

[Operator Instructions] The next question comes from Mauricio Serna with UBS.

Maybe could you talk a little bit about what you're seeing quarter-to-date? And sorry if I missed this, if you talked about any expectations if like for Q2, you're already anticipating an impact from tariffs? Yes, that would be my first 2 questions, sorry.

Yes. Thanks, Mauricio. This is Doug. We are experiencing a similar trend in Q2, similar to how we exited Q1. So that would be my comment on Q2. And then the tariff impact, as we had shared earlier, the biggest concern we have overall as Designer Brands is the indirect impact that tariffs are having on just the uncertainty and the volatility on customer sentiment. If you think about the brand portfolio, which is less -- well less than 20% of our overall business, the team has done a really good job of mitigating what at one point, we thought was $100 million of pressure on the gross profit line has mitigated that down significantly through factory negotiations, resourcing product, taking very select pricing increases to be able to mitigate that. Again, but our retail business is heavily reliant on our national brand partners, and we're obviously working very closely with them as they are also selectively passing on price increases. Our overall approach is to maintain our IMU. But again, we're working very closely with our brand partners to closely manage any price increases.

Got it. Very helpful. And then on Topo, exceptional growth and very good performance. Could you remind us like how are you thinking about -- how big the brand is right now for you? And what are your expectations for 2025? Like how much revenue do you expect from that business in 2025?

Well, again, as we shared, it grew 84% in the quarter, just exceptional growth. The team has done a really good job. [indiscernible] optimistic about that. I just would balance that with kind of the ongoing uncertainty and the volatility that the discretionary consumer is definitely under pressure. But the teams have done a really nice job of managing the inventory there. As you know, that category is much more diversified from a sourcing perspective. So a little bit less subject to the pressure of tariffs. And we'll carefully monitor the inventory. But again, the team did a really good job navigating that in Q1 as well. That's always been kind of a strong suit of the company, specifically at DSW. And then as it relates to holiday, I mean, we'll obviously stay very close to it. The teams are monitoring it every day with regards to reading and reacting to consumers and how they're responding in the moment. But there's -- any relief in this, I mean, we'll be well positioned to take advantage of that. But -- and again, that was a strong suit for us last year as we really leaned into gifting and the messaging and marketing of how that actually showed up in store as well. So we have that playbook ready to execute again this year. And I'd say, overall, we're cautiously optimistic. It's just the uncertainty of what's happening with customer sentiment.

And Serna, on your second question around the mitigation options on tariffs, the one thing I would reiterate is we certainly were already looking even before the tariff announcements to diverse -- start more aggressively diversifying outside of China. We certainly accelerated that. We've got options that could take us all the way down to almost 5%. But on the flip side, there's still a much more stable and cheaper supply chain in China for nonathletic footwear. So being something more than 5% might be more desirable, but it really will depend on where things shake out. But lower than where we started is certainly where we will end up the year. I will just remind you, only less than 20% of the products that we sell do we actually control where they're made. The rest of them, we buy from someone else and certainly are not part of this decisions.

I'd just add to what Jared said, I mean, our team has done a really nice job accelerating our diversification efforts so that we have greater optionality on those categories. But we want to stay close to it because, again, in many cases, the prices in China are still quite a bit favorable, particularly in the dress category where we overpenetrate.

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

In closing, I'd like to just say thank you again to all of our Designer Brands associates for their continued hard work and dedication throughout the quarter. And thanks to everyone who joined us today. We look forward to updating you in future months as we advance through the balance of the year. Thank you.

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