Designer Brands reports $46.5 million in adjusted operating income, with strong Q4 momentum and improved margins despite external challenges.

Retail profitability: we saw strong regular price performance.

Selling continued throughout the quarter. As a result, markdown rates improved by 140 basis points. All the above plus a strategic pullback on unprofitable digital promotions led to an improvement in adjusted operating income for the US retail segment of $5.7 million compared to last year. to Q3 last year, and our adjusted Operating income flow through improved by 100 basis points. Turning to our Canadian business, total sales for the quarter. for the quarter were down 8% with comp sales down 6.6%, largely due to Unseasonable warm weather that softened demand for seasonal products. While macro pressures remain, our teams are managing the business with agility and discipline and we remain focused on items in our control and delivering value to the customer. Encouragingly, performance in Q4 is rebounding as weather has normalized over the past several. weeks. Now to our brand portfolio segment. Total sales for the quarter were down 9% driven by a decline in our external wholesale business due to temporary sourcing related delivery delays, which we expect to recover in Q4. Operating income for the quarter increased by half a million dollars year over year. Despite a lower top line, this result was Driven by our disciplined expense management and tariff mitigation efforts. We are excited by the growth of the Topo business, which delivered 25% growth over Q3 last year and has Has more than doubled on a two year basis. Additionally, Jessica Simpson delivered another strong quarter. With external wholesale sales increasing roughly 8%. as a continuation of last quarter's growth. Let's turn to our key priorities for the near term for the near term. As a reminder, we remain focused on the two pillars of customer and product within our retail businesses. Within brands, we are working to drive. growth by scaling private label, building a More profitable wholesale model and investing in strategic growth brands. Our customer remains at the center of everything Everything we do and we remain focused. on delivering an expansive assortment of relevant products to exceed expectations across footwear categories. Building on the successful launch of our DSW brand repositioning earlier this year, we're moving into Q4 with a holiday-centric execution of our 'Let us surprise you' campaign, a natural opportunity to amplify DSW As a gifting destination. Our campaign features traffic-driving activations and exciting ways for our customers to engage with the brand while emphasizing style, quality, and value. We've been encouraged that the momentum we generated in Q3 has carried into the fourth quarter and we're optimistic that the Trends will carry forward through the balance of the season. Shifting to our product pillar, we remain focused on elevating and refining our assortment while continuing to improve inventory productivity and availability across channels. Sound execution of our inventory management strategies fueled margin expansion and higher in-store conversion rates in Q3 compared to last year. These efforts have placed us in a strong position heading into the holiday season. We continue to diligently refine our assortment, ending the quarter with approximately 30% lower choice counts compared to last year. At the same time, we have maintained a sharp focus on key item in-stock levels, which are up 460 basis points year over year to nearly 80%. This enhanced availability allows us to capture demand in our highest performing categories while maintaining a leaner, more productive assortment. We also continue to drive efficiency in our digital fulfillment operations, compared to last year, we fulfilled 15% more of our digital demand directly through Our logistics center, enhancing operational efficiency and customer satisfaction. This approach enhances the in-store experience that defines the DSW brand by providing better product availability for in-store consumers, which is contributing to increased in-store conversion. As noted on our last call, we recently unveiled our reimagined DSW store in Framingham, Massachusetts which showcases immersive, experience driven elements that fully embody our let it surprise you brand positioning. The store was designed to drive retail differentiation through discovery, personalization and technology enhanced engagement. Building on this success, we are rolling out this elevated experience to two additional stores, Union Square in New York City. and Easton in Columbus, Ohio, and more. Importantly, we are evaluating which innovation pilots can be scaled across the broader fleet. These efforts further reflect our commitment to evolving the DSW brand, deepening customer loyalty, and leveraging our stores as a true point of differentiation in the marketplace. Turning to our brand segment, our sourcing. Team continues to do an exceptional job. navigating a dynamic global environment, mitigating the impact of tariffs while advancing our strategy to further diversify our supply chain. We remain focused on expanding sourcing capabilities across multiple regions to reduce risk related to over-reliance on any single country. and strengthen our supply chain resilience as The tariff landscape remains uncertain. our disciplined approach to diversification helps us To maintain flexibility while supporting supply continuity and protecting margins. Turning to our brands themselves, Topo remains a standout performer with continued expansion in door count and shelf space along with strong direct-to-consumer growth and product innovation. A standout performer with continued expansion in door count and shelf space along with strong direct to consumer growth and product innovation. Other brands including Keds and Jessica Simpson also continue to make steady progress, supported by improved storytelling design focus and channel discipline. We are advancing efforts to scale our private label business and maintain a balanced wholesale strategy and look forward to sharing more about these initiatives in the near future. Before I conclude, I want to share a few thoughts on the remainder of 2025. The momentum established in the third quarter has continued into the fourth quarter, underscoring the effectiveness of our strategic actions. Mark will share more about our guidance for the full year in a moment, but as we move into the holiday season, I'm proud of the progress we've made in advancing our strategy and encouraged by the consecutive quarters of sequential improvement. While there is still a lot of uncertainty in the external environment, we remain optimistic about our ability to close out the year on a strong note. I continue to be inspired by the dedication and determination of our teams across the organization. Their focus on execution, willingness to adapt, and commitment to our strategy have been instrumental in driving our progress this quarter. With this foundation, I'm confident we are well-equipped to capture the opportunities ahead and build sustainable momentum for the long term. With that, I'll turn it over to Mark Mark.

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 improvement. 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. reverse in the fourth quarter. Finally, in our brand portfolio segment, total sales were down 8.6% compared 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 US Retail segment and an increase in fulfillment of orders through our East Coast Logistics Center. fewer markdowns in the US 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. sales for the third quarter. Adjusted operating expenses were up $2.5 million compared to last year, Last year, representing 39.4% of sales. This reflects a deleverage of 160 basis points over last year on lower sales. It's important to note that last year's third quarter benefited from the timing of a $9 million reversal of a bonus accrual. Amid ongoing macro volatility and the associated impact on consumer demand, impact on consumer demand, we've maintained a strong, disciplined approach to managing operating expenses, inventory, and capital investments. We now expect total expense savings to reach nearly $30 million for fiscal 2025 compared to 2024. For the third quarter, adjusted operating income was Was $46.5 million compared to $43.6 million last year. We are encouraged by the year-over-year improvement in operating income driven by Disciplined execution by our teams across the business. In the third quarter of 2025, we Had $11.4 million in net interest expense compared to $11.6 million last year. Our effective tax rate in the third quarter on our adjusted results was 44% compared to 55% last year. Quarter on our adjusted results was 44% compared to 55% last year. Our third quarter adjusted net income was $19.6 million versus $14.5 million in the prior year. Adjusted diluted earnings per share was $0.38, which was notably above last year's earnings per share of $0.27. Turning to our inventory, we ended the third quarter with total inventories down 2.7% compared to last year. Third quarter with total inventories down 2.7% to last year. For year-end, we are continuing to strategically manage inventory levels to align with underlying sales trends. strategically manage inventory levels to align with underlying sales trends. This disciplined approach positions us to respond quickly to demand and should allow us quickly to demand and should allow us to close the year with a healthy inventory position. During the quarter, we utilized excess cash to further strengthen our balance sheet, paying down debt and ending the quarter with total debt outstanding of $469.8 million. Down debt and ending the quarter with total debt outstanding of $469.8 million. We will continue to reduce debt as we move towards the end of the year. We move towards the end of the year. We ended the third quarter with $51.4 million in cash. Our total liquidity as of the end of the third quarter, which includes cash and availability under our ABL revolver, was $218.3 million, providing us with solid financial flexibility as we close out the year. flexibility as we close out the year. As Doug noted, we have seen our. Q3 momentum carry into Q4 and we believe Believe we have enough visibility to share. our expectations for the fiscal year. At this point, we expect total net sales for the year to be down in the range of 3 to 5% with adjusted operating income in the range of $50 to $55 million. sales for the year to be down in the range of 3 to 5% with adjusted operating income in the range of $50 to $55 million. Our forecasts are contemplating tax expense for the year in the range of $8 to $10 million. To 10 million dollars. To conclude, I'm pleased with the progress we achieved in the third quarter, delivering a year-over-year improvement in operating income, expanding gross margin, and strengthening our balance sheet as we close out the year. a year-over-year improvement in operating income, expanding gross margin, and strengthening our balance sheet as we close out the year. Our improved profitability and solid liquidity position give us confidence in our ability to advance our strategic priorities. With that, we will open the call for questions.

Operator. We will now begin the question and answer session. To ask a question, you may press Star then one on your touchtone 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 two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Mauricio Serma with UBS. Please go ahead.

Great, good morning. Thanks for taking our questions. 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 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 a little bit more? Why do you have this wide range for the Q4 sales guidance? Thank you.

Good morning, Mauricio, this is Doug. Thanks for your question. Yeah, we were 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 an 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 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 on what you're seeing in terms of the promotional environment? Thank you.

Yeah, thanks for the question. We continue to be encouraged by how the teams have managed gross margin, 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. For the gross margin in Q4, there is a promotional environment, but we're not seeing a lot of resistance from our customers as it relates to higher prices. Our AUR 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. We're seeing a little bit of pressure on the digital top line, but significant expansion in operating income in that channel.

Great, thanks for that, and good luck in the holiday season.

Thanks, Mauricio.

As a reminder, if you would like to ask a question, please press Star then one to join the question queue. 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 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.