Good day. And welcome to the Designer Brands Inc. Third Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Ashley Furlan. Investor Relations. Please go ahead.

Good morning. Earlier today, the company issued a press release comparing results of operations for the thirteen-week period ended November 1, 2025, to the thirteen-week period ended November 2, 2024. 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 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, Mark Haley, SVP, Controller, Principal Accounting Officer, and Interim Principal Financial Officer, as well as Matt Crummey, our SVP of Strategy overseeing FP&A and Investor Relations. Now let me turn the call over to Doug.

Good morning, and thank you, everyone, for joining us today. We're looking forward to discussing our third-quarter results with you. I'd like to begin my prepared remarks by saying how encouraged I am to be posting another quarter of sequential improvement, made possible by the hard work, resilience, and commitment of our Designer Brands team. Joining me on the call today is Mark Haley, Senior Vice President Controller, and Principal Accounting Officer who has also assumed the role of Interim Principal Financial Officer. I'd also like to introduce Matt Crummey, our Senior Vice President of Strategy who is now leading FP&A and Investor Relations. As we continue the search for our next CFO, I am confident that Mark and Matt's deep knowledge of our business and strategy will ensure a seamless transition as we execute against our transformation. Building on the improvement from Q2, the third quarter represented another step forward with continued progress across key metrics. We delivered on our strategic priorities throughout the quarter, and I'm pleased to share that this positive momentum has carried through the early part of the fourth quarter. I believe we are positioned well as we close out the year. Our results are an encouraging indicator that we are effectively communicating our value proposition amidst the ongoing uncertainty in the external environment. In Q3, we delivered another quarter of sequential improvement, supported by healthier traffic, higher store conversion, and disciplined expense and inventory management. Our total sales for the quarter were down 3% year over year, with comparable sales down 2.4%. A 260 basis point sequential improvement from second-quarter comparable sales reflecting strengthening consumer demand and improved in-store execution. In addition to driving improved top-line trends, we continue to diligently manage markdowns and operating expenses. As a result, gross profit dollars exceeded last…

Thank you, Doug, and good morning, everyone. I'm excited to share our third-quarter results, which were marked by another strong step forward in our transformation, building on the progress we made in the second quarter. We executed well against our strategic priorities and continue to see meaningful improvement across key metrics. Let me provide a bit more detail on our fiscal 2025 third-quarter results. We were pleased to see another quarter of continued sequential improvement with comps down 2.4% and net sales of $752.4 million, a decline of 3.2% year over year. In our U.S. Retail segment, sales declined 0.8% year over year with comp sales down 1.5%. Both metrics reflect another quarter of sequential improvements from Q2, demonstrating the continued increase in customer engagement, strength of our product assortment, and improving sales productivity in our U.S. Retail segment. In our Canada retail segment, sales declined 7.5% in the third quarter compared to last year with comps down 6.6%. As Doug mentioned, this decline was mainly due to warmer weather stifling demand for seasonal products. We have seen this trend beginning to reverse in the fourth quarter. Finally, in our Brand Portfolio segment, total sales were down 8.6% to last year, largely driven by a shift in sales from external wholesale activity from the third quarter to the fourth quarter due to shipment timing. As a result, we expect higher sales year over year from external wholesale in the fourth quarter. Consolidated gross margin was 45.1% in the third quarter, a 210 basis point improvement versus the prior year driven by strategically fewer markdowns in the U.S. Retail segment and an increase in fulfillment of orders through our East Coast logistics center. This resulted in gross margin dollars increasing $5.8 million year over year despite lower sales. For the third…

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Mauricio Serna with UBS. Please go ahead.

First, on the commentary about the momentum continuing into the fourth quarter, could you elaborate a little bit more about what your trends are quarter to date? And if I just look at, you know, the guidance for the full year, I think the implied guide for Q4 is roughly minus 5% to up almost 4%. Could you maybe explain, like, a little bit more why you have, like, this wide range for the Q4 sales guidance? Thank you.

Mauricio, this is Doug Howe. Thanks for your question. Yeah. We are encouraged, obviously, as we said in our prepared remarks with regards to the sequential improvement we saw in Q3. And October was actually the strongest month of that period. And that momentum has continued into Q4. I don't want to get into a lot of specifics in the current quarter, but the key categories, the key brands, the classifications that were giving momentum in Q3 have continued, namely the top eight brands, continue to outperform. The boot category, in particular, as I mentioned, was off to a very strong start. Specifically as it relates to regular price selling in Q3. That has definitely continued. The teams have done an amazing job to be able to react to that trend as well. The affordable luxury business, while small in overall volume, is almost double what it was last year. So we're seeing some really nice momentum there as well. And all of that is based into the guidance that we provided for the full year. There's a little bit of noise if you think about the difference between the retail sales and brands. As I mentioned, brands had a bit of a decrease in Q3 based on some temporary timing shifts of delivery. But that will be rebounding, and we're forecasting positive sales there. So that creates a little bit of noise in the Q4 results for total net retail sales.

Got it. In terms of, like, gross margin, you know, nice to see the progress. How are you thinking about the gross margin in Q4 and maybe just any high-level commentary of what you're seeing in terms of the promotional environment? Thank you.

Yeah. Thanks for the question. We're continuing to be encouraged by how the teams have managed gross margins, specifically at DSW. As I mentioned, in Q3, we had a 140 basis point improvement in markdown rate. And we see similar favorability in Q4. We're anticipating that as well. The gross margin in Q4, you know, there is a promo environment. But we're not seeing a lot of resistance from our customers as it relates to higher prices. Our ARR was up nicely. Some of the categories that are strongest performing are the higher AUR categories as well. We, as I said, have been mindful of walking away from some unprofitable digital promotions. And we'll continue to do that, seeing a little bit of pressure on digital top line, but significant expansion in operating income in that channel.

Great. Thanks a lot, and good luck in the holiday season. Thanks, Doug.

As a reminder, if you would like to ask a question, please press star then 1. This concludes our question and answer session. I would like to turn the conference back over for any closing remarks.

Thank you all for joining us today and for your continued support. It's clear that we are encouraged by the sequential improvement that we delivered in Q3 and that we remain confident in our strategy, our team, and the opportunities ahead to build sustainable momentum for the long term. We're focused on execution and a willingness to adapt in order to best serve our customers and drive value for our shareholders. We appreciate your time today, and we look forward to updating you next quarter. Thank you.

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