Good day, and welcome to the Designer Brands Inc. 4Q 2025 Earnings Conference Call. All participants will be in listen-only mode. By pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note today's event is being recorded. I would now like to turn the conference over to Matthew Crumme, SVP of Strategy and FP&A. 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 January 31, 2026, to the 13-week and 52-week period ended February 1, 2025. 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 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 Seamus Toll, Chief Financial Officer. I will now turn the call over to Doug.

Good morning, and thank you, everyone, for joining us today. I'm very proud that our fourth quarter and full fiscal 2025 results reflect disciplined execution and the meaningful progress we have made in strengthening our business. I want to recognize the commitment of our Designer Brands Inc. associates, who have remained focused on serving our customers and advancing our strategy. Before discussing our results, I want to give a warm welcome to Seamus Toll, our new executive vice president and chief financial officer, who joined us last month. Seamus brings decades of financial and operational leadership experience across complex organizations, and his expertise will be critical as we advance our strategic priorities and drive long-term shareholder value. I am pleased to have him with us today. Building on the momentum we established throughout the year, we were pleased to deliver another consecutive quarter of sequential improvement. Net sales were flat year over year in the fourth quarter, and consolidated comparable sales improved sequentially by 50 basis points. For the full year, total company sales declined 3.9% compared to last year, coming in towards the high end of our guidance range, and comp sales were down 4.3%. Notably, we delivered full-year adjusted operating income of $65,000,000, significantly above our guidance range of $50,000,000 to $55,000,000, driven by an improvement in fourth quarter sales trends, continued gross profit expansion, and disciplined expense management that resulted in a $26,000,000 reduction in adjusted operating expenses compared to last year. As I reflect on 2025, I want to acknowledge that the year began with a level of macroeconomic volatility and pressured consumer sentiment that few could have anticipated. I am proud of how our team responded. We executed disciplined pivots to meet the needs of our business while remaining committed to our strategy, ultimately closing…

Thank you, Doug, and good morning, everyone. I would like to begin by expressing my excitement about joining the team as Chief Financial Officer and thanking the Designer Brands Inc. Board and the leadership team for their trust and warm welcome. My first month has been exciting, and I look forward to supporting our strategy to drive long-term growth and value creation. I am eager to engage with our investor community and hear your perspectives as we continue to execute our strategy. I am pleased to share Designer Brands Inc. fourth quarter and full-year results. The team successfully executed against its strategic priorities and delivered significantly improved performance as the year progressed. Let me provide a little bit more detail on the financial results. We were pleased to see another quarter of continued sequential improvement with net sales of $713,600,000, flat to last year, and comps down 1.9%. Full-year net sales decreased 3.9% to $2,900,000,000, and comps were down 4.3%. In our Retail segment, sales were roughly flat to last year, and comps were down 1.7% in the fourth quarter. From a category perspective, boots, affordable luxury, and accessories were our top performers. In our Brand Portfolio segment, sales were up 5.3% in the fourth quarter driven by strong performance in both Topo and Jessica Simpson. Consolidated gross margin in the fourth quarter was 42.4%, a 280 basis point improvement year over year driven by stronger IMU, fewer markdowns, and lower shipping costs. This resulted in a $20,100,000 gross margin dollar improvement compared to last year. Full-year consolidated gross margin was 43.6%, a 90 basis point improvement year over year driven by favorable merchandise margin and increased efficiency in our digital order fulfillment operations. For the fourth quarter, adjusted operating expenses were up $6,400,000 compared to last year, representing 44.4%…

Thank you. We will now begin the question-and-answer session. If your question has already been addressed, you'd like to remove yourself from queue, please press star then 2. Once again, that's star then 1 if you have a question. Today's first question comes from Mauricio Serna with UBS. Please go ahead.

Great. Good morning. Thanks for taking my question. A couple of things. First, could you comment on what you saw in performance in the top eight national brands? I believe that has been a focus for the company in the previous quarters. And then maybe just to understand the shape of the revenue guide. You mentioned first quarter revenue should be flat to up slightly, or up low single digits, but then the guidance for the year actually calls for flat at the midpoint. So I'm just trying to understand what drives the implied slowdown as you move on through after Q1? And is the increase in wholesale just driven by the strength in some of the exclusive brands that you sell? Topo, Jessica, is that the right way to think about it? And one last housekeeping item. In the guidance, you included share count being 58,000,000. I think that is 58,000,000 shares outstanding for fiscal 2025. That is 8,000,000 higher, 16%, versus last year. I just want to understand what drove that increase and how should we think about the interest expenses for the year? Thank you.

Yeah, Mauricio. Let me take the first question on the top eight brands. We are going to actually be evolving that to top 10 brands for 2026. It would be those brands plus our three exclusive brands which we sell only at DSW, and we are really excited about the growth those brands represent given they are only sold in our channels of distribution. The top eight brands for 2025 drove a comp increase. We were very happy with that, roughly 40% of the total business. So the team's continued focus on deepening those relationships with the merchandise that matters most and deepening our planning with those strategic brand partners has definitely paid off, and we see that continuing to pay dividends into 2026 as well. To your second question on guidance, you know, I am the internal optimist. There could be some upside in there. We just want to acknowledge that given the uncertainty of the macro environment, we want to be mindful of that, particularly as it relates to the back half, which, as Seamus said in his prepared remarks, we come up against stronger comp. Very encouraged by quarter-to-date trends that we are seeing in Q1. That momentum that we experienced in Q4 has continued, particularly in the store channel, which has been a big focus for the teams, and we feel like that is our biggest point of differentiation. You know, we had a little bit of challenging weather impacts as we started this quarter, but kind of come around that and, you know, coming up against the shift of Easter, we feel really encouraged by that. So in large part, just a little bit of a conservatism probably in back half when we come up against those higher comp. On the overall side, obviously, we are going to see a double-digit increase on the wholesale business throughout the year. So that is kind of how it balances out for total. Yeah. The whole portfolio is going to drive significant growth. Obviously, Topo is a significant driver of that growth. Jessica Simpson is a big growth driver. Keds will have an increase in 2026 as well. And again, those are largely the largest clients are either not DSW at all or their largest customers are outside DSW. And then the exclusive brands piece will be driving growth in our channels and distribution. So pretty well-rounded growth, internal and external.

Mauricio, it is Seamus. I will take those questions. So first, in terms of the share count, I think if you look back at the history, the lower share counts were in periods in which we had a loss. And in those periods, from a GAAP accounting standpoint, we do not include the full impact of potential dilutive shares. As we move into the future, we are anticipating, and based upon our guidance, anticipating that we will shift back into profitability. And as such, we need to include the full impact of potentially dilutive shares in our diluted share calculation. So that is what is driving the increase. It is not really incremental shares; it is just that now they are included in periods of income. In terms of the interest for the year, I think as we disclosed on the call, we are expecting to see significant reductions in debt levels as we have completed this year. We completed this year with debt levels down approximately $60,000,000 to last year. So that is helping us from an interest perspective in controlling interest costs as we move into the fiscal year this year. So those are built into those expectations, are built into our numbers for the year. You know, in terms of the total dollar value, we are anticipating about $40,000,000 of interest for the full fiscal year, which takes into account that lower level of debt. Also, would point out in terms of our interest calc, you might have noticed that we have tremendous partnership with our banking partners. We negotiated an extension of our ABL revolver. So we are really pleased with those partnerships, and that will continue for us into the future.

Got it. Very helpful. Thanks so much.

Thank you. And as a reminder, if you would like to ask a question, our next question today comes from Dana Telsey at Telsey Group. Please go ahead.

Hi, good morning everyone. Can you talk a little bit about on the inventory side and tariffs? As you are bringing in inventory now, what rate are the tariffs being brought in by, and how are you thinking about the tariff impact flowing through with rates where they are and how they were, how is that changing and the impact on margins. And then just lastly, Doug, category wise, what are you seeing category wise? How is it shifting? And promotional landscape of how you are seeing the environment. Thank you.

Thanks, Dana. Appreciate your questions. First of all, to address your tariff questions, it is still an evolving tariff environment. We thought we had kind of gotten through all of that in 2025, but there is still, you know, quite a bit of evolution that is happening there. Our guidance is built on the assumption that the new tariffs are largely going to be inactive. We will replace the IEPA tariffs. So there is definitely favorability that we are seeing right now with regard to year-over-year comparisons. But there potentially could be some upside if, you know, if the inactive tariffs do not replace those. So that could prove to be conservative, but we want to just be, you know, clear about the fact that there are ever-changing dynamics there, so we want to stay close to it. So, again, could be some net upside in there. But, again, just continues to be so much volatility. On the category perspective, I would say it is pretty broad-based. We feel really good about the dress category. We have always had leading market share penetration in that category. We are seeing nice increases there. For fall, you know, we planned boots down significantly. We actually had an increase, so that was a big rebound. Sandals for spring are off to a really good start. So it is pretty broad-based. We talked about affordable luxury. It is a business that is providing incredible growth for us and fits into that, you know, Let Us Surprise You component of our product assortment. And then the accessory business in adjacent categories has given us very significant growth as well. And we feel really good about all those continuing momentum through 2026. From a promotional perspective, I am really proud of the team, the evolution that the new refresh merchandising team has made on the product assortment. You heard about our margin expansion of 280 basis points for last year's performance. We are being much more surgical with regards to promotions. We have focused a lot on channel profitability, specifically on digital, pulling back on some of those promotions. And as a result, we have reduced our markdown rate tied to the fact that we are very conservatively managing our inventory. We ended with inventories down 6%. So all that has led to a pretty nice expansion in margin that we feel really good about. Thank you.

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

Thank you all for your continued interest in Designer Brands Inc. Before we close, I just want to again recognize the dedication and the commitment of our teams. Really proud of the determination and the resilience that they showed this past year. I would also share that we continue to be encouraged by the momentum we are building in the business, driven by the strategic priorities that we shared, and we are looking forward to continuing to update you on our progression throughout the year. Thank you.

Thank you. That concludes today's conference call. We thank you for attending today's presentation. You may now disconnect your lines and have a wonderful day.