Designer Brands Inc. (DBI) Q3 2021 Earnings Report, Transcript and Summary

00:04 Good day and welcome to the Designer Brand Inc. Third Quarter twenty twenty one Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that we do ask you to limit yourself to a single question with one follow-up. Please also note today's event is being recorded. 00:39 I would now like to turn the conference over to Stacy Turnof with Edelman. Please go ahead.

00:44 Good morning. Earlier today, the company issued a press release comparing results of operations for the thirteen-week period ended October thirty, twenty twenty one, for the thirteen-week period ended October thirty first, twenty twenty. Please note that remarks made about the future expectations, plans, and prospects of the company constitute forward-looking statements. 01:05 Results may differ materially due to 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 Roger Rawlins, Chief Executive Officer; and Jared Poff, Chief Financial Officer. 01:23 Now let me turn over the call to Roger.

01:26 Good morning and thank you, everyone, for joining us today for Designer Brands third quarter earnings call. We are incredibly excited to share another record setting quarter with you today. As always, we'd like to take this opportunity to thank our associates for their hard work and dedication. We could not achieve this level of success without you. 01:47 Our strong performance continues to be driven by the strategies we outlined back in twenty nineteen following our acquisitions of the Camuto Group and Shoe Company in Canada, with a clear focus toward casualizing our product offerings to meet the demands of the consumer. This direction has helped to improve our business throughout twenty twenty one and will be a permanent piece of our go forward model. 02:10 Q3 sales continue to recover versus twenty nineteen levels. And we achieved all-time records in gross margin, operating income and EPS with each and every segment contributing to these accomplishments. We've noted this as well as other key highlights for the quarter and our infographic on our Investor Relations site. 02:31 We continue to see strength in our key assortment distortion, including athletic and athleisure, kid’s and men's all powered by the top fifty brands in footwear, and our women's fashion business has also improved significantly. 02:46 These investment strategies will ensure that Designer Brands is well positioned to continue to grow market share in categories where we have historically captured share well below the levels we've commanded in women's fashion. These assortment distortions open up opportunities to compete in time periods where categories other than fashion are top of the mind for the consumer and allow us to expand market share while mitigating risk we have traditionally faced from relying so heavily on the fashion and seasonal categories. 03:16 For example, this year, we became a top destination for families to shop for back to school. We were able to participate in this season at a whole new level than we have ever had in the past given our increased penetration of athletic and kid’s product. Notably, according to NPD, we grew kid’s sales thirty five percentage points faster than the rest of the market in the quarter ending October compared to the same period in twenty nineteen. 03:43 Our brands were at the top of consumer’s minds as our integrated marketing strategy to increase awareness of DBI as an athleisure destination for the family was successful. Additionally, we've had a strong start to the fourth quarter as kid’s and athletic typically lend themselves to greater gift giving. We set an all-time record for demand in a single day in a single week this Black Friday and Black Friday week. Prior to setting this new record, our highest demand week was in the spring season. 04:13 So, we are very pleased to be opening up new times of the calendar in which we can grab market share. For the total holiday weekend, demand for DSW was up eight percent versus twenty nineteen with both digital and stores posting positive comps for the five day period. These results were driven by athletic comps up over fifty percent and kid’s comps up over forty percent versus twenty nineteen. 04:39 Even more notably, we had positive comps in our fashion categories for the first time since the onset of COVID-nineteen. Our best-in-class VIP loyalty programs remain a key driver for our growth and is also benefiting from our widened customer base. 04:55 For all of Designer Brands, new VIP enrollments grew by one point eight million and for DSW, enrollments were up thirty percent in the third quarter versus twenty twenty. Additionally, our conversion of non-VIP members to VIP members at DSW was at a twelve month record high during July and August. 05:15 As we've shared over the past couple of years, we are growing our business through our focus on the top fifty brands in footwear, including our own vertical brands. Over the last three years, we have reduced the number of labels we offer and are focused on the brands we know our customers want. This has resulted in a twenty five percent reduction in number of labels from whom we buy goods over a three year period. 05:38 In our U.S. Retail segment today, our top fifty brands represents seventy seven percent of our total sales as compared to sixty five percent in twenty nineteen. Additionally, our number one selling item was a top fifty national brand boot with an average unit retail of one hundred and forty four dollars. Today, we are one of the top retail partners for most of these brands. 06:02 We believe that our strategy to go narrower and deeper with our inventory investments has been game changing for Designer Brands for the following reasons. First, it allows us to see higher conversion as we're in stock with sizes more frequently. Second, we are more relevant to these key brands, giving us opportunities for priority access to exclusive items and ensuring we are placed at the top of the food chain when supply chain issues occur. 06:29 Third, we can now consistently tell marketing stories to consumers about brands we have available across our entire fleet of warehouses. And then four finally, it increases our ability to engage in full price selling with fewer [fringe items] [ph] in sizes going into clearance, improving gross profit. 06:50 As I've shared, our merchant and planning teams have made great decisions around our assortment by shifting to match consumer preferences. While athletic and kid’s categories continue to be strong, we saw our historically powerful fashion categories gain momentum in the third quarter. We've also seen our boot business kick in at the beginning of Q4 with the later onset of cooler weather. 07:13 Additionally, our dress business continues to recover with women's dress up fifty eight percent in the third quarter versus twenty twenty and men's dress up eighty seven percent in the third quarter, compared to twenty twenty. As an organization, we have also rallied around brands that we own and control. 07:32 We drove business through implementation of shop and shops, unique digital experiences and major launches. We also continue to see strength in our top rated omni-channel platform with digital demand at U.S. Retail up twelve percent in the third quarter compared to the same period in twenty nineteen, on top of a strong demand comp of forty five percent during Q3 of twenty nineteen. 07:56 At Camuto, we are reigniting our focus on our owned-brands and had a soft re-launch of the Vince Camuto brand on September fourteen. We've done the work to dig into who the consumer is, and what they expect from our Camuto product. We identified them in the channels we control. 08:12 We focused our top design talent on building on trend products for these customers, and we invested in re-launching the brand, placed bets on key items, and started transitioning the brand from being a women's only fashion brand to a gender neutral fashion brand. This strategic shift has already been a huge success with the vincecamuto.com sales up over eighty percent since the soft re-launch on September fourteen versus the same period in twenty nineteen. 08:42 Net wholesale sales of Vince Camuto women's footwear also increased by five percent versus twenty nineteen. Furthermore, vincecamuto.com third quarter margin was sixty percent versus forty six percent in the same period twenty twenty and fifty two percent in the same period twenty nineteen. 09:01 We are pleased that our own brands made up three of the top ten styles DSW sold in the quarter, whereas none of our own brands were in the top ten items in twenty twenty. This demonstrates how elevated our assortment has become and how much our customer loves it. 09:18 In terms of inventory, we are well positioned despite the industry-wide supply chain issues and see our positioning as a strategic and competitive advantage. We bought product ahead of the season and over ordered in anticipation of inventory cuts, accelerated orders of our owned-brands and leveraged our scale and strong relationships with our vendors. This has enabled us to get access to additional product and has put us in a better position than most of our peers heading into the fourth quarter. 09:48 We started the third quarter with the retail segment's inventory down nineteen percent versus twenty nineteen and ended the quarter with the retail segment’s inventory flat to twenty nineteen. 09:59 I want to say this again because this is so important as it relates to the future performance of our business and our competitive position. We improved our retail inventory position from down nineteen to twenty nineteen at the start of the third quarter to flat as we entered the fourth quarter. This positions us exceptionally well to deliver fourth quarter sales growth that is much stronger than even third quarter. 10:24 Our top fifty brand strategy that I spoke about earlier has enabled Designer Brands to better manage inventory levels, particularly with our owned brands that are starting to outperform. As we look to the future of our business, we see notable opportunities to sustain much of this record setting margin expansion over the long run. 10:43 Gross margin continues to rise from historical levels, due to the increased penetration in our top fifty brands narrower and deeper inventory investments, growth of our private brands, and decreased promotions and clearance driven by all of these decisions. Let me go into detail in just a few areas of opportunities for continued growth. 11:05 First, we continue to build awareness as an athleisure destination at a time when that's what the customers are looking for. This strategy and investment in our athletic assortment will allow us to grow market share in two athletic heavy periods of the year. First, back to school. As I mentioned in my opening remarks, we are playing bigger here than ever before, and we have significant room to continue to compete. 11:31 According to the NPD Group and peak back to school timeframe, which is defined as July through August twenty twenty one, DSW outpaced the remaining U.S. footwear markets significantly in kid’s and athleisure, compared to the same quarter in twenty nineteen. And then second, the athletic window also includes holiday in post New Year's selling periods. 11:53 These windows are large athletic selling periods in our industry. We have historically been in boot liquidation mode during these windows and expect to see material increases in athletic selling. We have positioned athletic inventory in these windows to compete more significantly this year and we'll continue to do so in the future. 12:12 Next, our assortment is vastly different than pre-COVID when we were caring five hundred plus labels and had to heavily market our portfolio of labels. Our increased penetration of the top fifty brands now carries more weight with the consumer and allows us to have more regular price selling as many of these brands prohibit bulk discounting and require fewer marketing dollars for conversion. 12:36 As we have mentioned before, the growth of our exclusive brands will drive our long term margin profile. Our vertical brands have compelling margins relative to the national brands. Typically, our exclusive brands command margins roughly at thousand basis points higher than branded product and sourcing them ourselves through Camuto adds in an anticipated extra five hundred basis points. Given the trends that we are seeing in today's market, the opportunity may be even greater than fifteen hundred basis points. 13:07 We believe that there is still so much room for growth as it relates to overall athletic space that will help drive top line growth, as well as improve our margins. Even with our recent success in the category, we are still heavily underpenetrated to the market. 13:22 As we review our athletic brand portfolio, sixty percent of the athletic brands we carry posted a comp above twenty five percent during the third quarter versus twenty nineteen proving that our investment is working. Additionally, leveraging our exposure to athletic has allowed Designer Brands to expand its reach to the male customer base. 13:44 In fact, our men's athletic business was eight percent of total sales in the third quarter versus six percent in twenty nineteen and up fifty six percent in regular price selling versus twenty nineteen. Also, we expect to continue our very successful strategy that started in the first quarter to meet the customer where they are by investing more in digital marketing. 14:08 This investment continues to result in top and bottom line benefits, as well as strong customer acquisition with VIP enrollments of one point five million members in the third quarter, representing our second biggest acquisition quarter in the brand's history, following our biggest acquisition quarter, which was Q2 twenty twenty one. 14:28 Our targeted marketing campaigns continue to yield stronger results and increased efficiencies. In addition to strong customer acquisition, we continue to reengage customers that have reduced shopping patterns during the pandemic. As a result, our active members of DSW are up twenty nine percent from where they were at the start of the fiscal year. 14:50 Lastly, we are acutely aware of the supply chain and labor challenges facing the industry today. And we have baked these factors into our projections. We believe we have planned well and can manage these headwinds and that our margins will continue to grow as they subside. 15:08 Moving to Canada, we have seen considerable improvement from the second quarter with third quarter comps down six percent versus twenty nineteen. Our Canadian stores also had a strong back to school period with total sales coming in just slightly under twenty nineteen. 15:23 Store comp significantly improved as customer's return to physical shopping, all while our Canadian digital business remain strong, gaining market share online. We ended the quarter with inventory in a healthier and lower position at down two percent versus twenty nineteen, compared to down sixteen percent in the second quarter. 15:44 Notably, Canada delivered the best quarterly gross profit contribution performance in the history of the segment. 15:53 Before turning over to Jared, I'd like to quickly touch on our results. We are extremely pleased with our total company performance with comps up forty point eight percent versus twenty twenty. 16:04 Gross margin was up seven hundred and forty basis points to thirty six point seven percent in the third quarter versus twenty nine point three percent in twenty nineteen. We are pleased we continue to see strong momentum heading into the fourth quarter. Jared will speak to our expectations in more detail in just a moment. 16:23 Looking forward, we will continue to execute on our three key strategic initiatives. First, the customer. We are removing friction and focused on acquiring new customers. Number two brand. We are continuously evolving our assortment to match consumer preferences by supporting the top fifty brands in footwear, while growing our own brands. 16:44 And then finally, three, speed. We are working to get product to our customers faster and more efficiently. We expect that our focus on these strategic pillars will allow us to grow market share, improve margins, and grow our bottom line both this year and into the future. 17:01 With that, I'll turn it over to Jared. Jared?

17:05 Thank you, Roger, and good morning, everyone. We are thrilled with our third quarter results and pleased that our momentum continues to accelerate across the board. We delivered an incredibly strong quarter as we significantly surpassed our expectations and set all-time records across our operations, while also positioning our business with a substantially stronger balance sheet as we exit twenty twenty one. 17:31 Our flexible business model and strategy have contributed greatly to our success as we have pivoted our assortment over the last year point half in response to the impact of COVID, as well as changing consumer demand. 17:43 Additionally, we were able to significantly improve our inventory position during the quarter despite the challenging supply chain environment that the industry is facing. As a result, we believe that we are well positioned for continued growth throughout the fourth quarter and into twenty twenty two. 18:01 Please note the financial results that we will reference 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. 18:15 Turning to our results, for the third quarter, sales increased thirty one percent to eight and fifty three point five million dollars, compared to twenty twenty. Total comps were up forty point eight percent in the third quarter compared to last year's thirty point four percent decline. 18:32 In U.S. Retail, comp sales were up forty three point nine percent during the third quarter, versus down thirty one point nine percent during the same quarter last year. This continued improvement has been driven by our near term strategy, and we’ve seen this play out in some of our leading indicators. 18:49 Notably, our operational performance has continued to improve compared to pre-pandemic twenty nineteen. Store traffic continued to improve to down eight percent in the third quarter versus twenty nineteen, compared to down ten percent in the second quarter and down almost thirty percent in the first quarter. 19:07 We continue to see even further improvement as we head into the fourth quarter. Additionally, e-commerce traffic was up eight point seven percent, compared to the third quarter of twenty nineteen. And it’s important to note that third quarter of twenty nineteen was a highly promotional period for us that saw digital traffic up a strong twenty six point three percent, which makes the improvement this past quarter even that much more compelling. 19:32 Our stellar performance across categories drove continued success. To add to the metrics that Roger discussed, during the quarter athleisure comps were up thirty eight percent versus the same period in twenty twenty and up thirty percent compared the third quarter of twenty nineteen. 19:49 According to NPD, we grew athleisure sales twenty six percentage points faster than the rest of the market in July and August, compared to the same period in twenty nineteen, resulting in an overall market share gain of thirty basis points. Athleisure penetration was fifty percent in the third quarter versus thirty eight percent in twenty nineteen. 20:10 Turning to seasonal, similar to what we experienced in sandals this past spring, we are seeing the consumer come back to freshen [up her boots] [ph] later than usual in the season. In the spring, sixty two percent of overall women’s sandal sales fell in Q2, compared to closer to fifty eight percent historically. 20:29 We are seeing a similar trend in this year's boots selling with less emphasis on [October] [ph] and greater demand in Q4. In fact, November was our best boot selling comp of the season so far with regular price sales comping positive to twenty nineteen. 20:47 For all seasonal, we posted comps of sixty one percent compared to third quarter of twenty twenty where we're down ten percent compared to third quarter of nineteen, due primarily to the clearance being down twenty six percent and the shifting of regular price selling into Q4. We are excited as we are seeing our boot business accelerate as we progress through the fourth quarter and we have the ability to pull forward inventory produced by our own Camuto division to meet this demand. 21:14 As Roger mentioned, our dress category continues to recover with women's dress down thirty four percent in the third quarter twenty one versus twenty nineteen. A sequential improvement from the down forty percent in the second quarter and down fifty seven percent in the first quarter of twenty twenty one. 21:31 Men's posted a positive three percent comp compared to twenty nineteen with men's dress also improving to down nineteen percent versus twenty nineteen from down thirty percent in the prior quarter. Per NPD, we grew men's dollar sales ten percentage points faster than the rest of the market in the quarter ending October, compared to the same period in twenty nineteen. 21:54 Kid’s comped up forty four percent compared to Q3 of twenty nineteen. Our focus on growing our kid’s business has created an entirely new selling cycle for us around back to school. We saw record back to school results this year and the kid’s category pushing our total company to strong positive comps over the same period in twenty nineteen with kid’s penetration reaching over fifteen percent. 22:18 According to NPD, DSW outpaced the market in kids dollar volume growth by seven point five times in the back to school timeframe of July and August of twenty twenty one versus twenty nineteen. We have leaned into this new market share opportunity with the right product, enhanced marketing to drive awareness, and new customer acquisition initiatives and it is played out perfectly. 22:42 Importantly, we have not seen a slowdown in our digital growth. U.S. Retail digitally demanded sales for the third quarter were up twelve percent versus twenty nineteen, which is notable considering the forty five percent comp in the third quarter of twenty nineteen, due to the high promotional environment. Digitally demanded sales were also up nine percent compared to third quarter of twenty twenty. 23:04 Digital demand remained steady at twenty seven percent of total demand in Q3 versus thirty five percent last year and above twenty nineteen levels of twenty four percent. As has been the case all year, Canada's recovery is a bit delayed from the U.S. but is seeing continued traction. Total comps were up fifteen point two percent in the third quarter compared to down eighteen point seven percent in the prior year and above both the first quarter comp of ten percent and second quarter comp of fourteen point six percent. 23:36 Traffic comp significantly improved during Q3 and were down twenty percent to twenty nineteen compared to down fifty one percent in Q1 and down forty three percent in Q2. Similar to the U.S., the Canadian boot business got off to a later start than typical with much warmer weather throughout much of Canada. 23:55 However, as the weather [churned] [ph], we have seen our boot business come roaring back and our inventory is in a good position. Digital demand continues to be strong, up seventy percent to twenty nineteen with digital sales representing seventeen point seven percent of total Canadian sales almost twice that of twenty nineteen. 24:15 Turning to Camuto, we continue to ramp production as we are seeing growing demand for our products and Camuto remains an essential contributor to our long term strategy of building our own vertical brands. 24:27 Q3 production increased by sixty four percent compared to the same time last year, and we are expecting Q4’s year over year production to increase over one hundred percent in anticipation of a strong spring. 24:40 Total net sales from Camuto, including sales to DSW were one hundred and three point nine million dollars in the third quarter, up twenty three point nine percent versus last year. Wholesale sales were ninety point six million dollars in the third quarter versus seventy three point seven million dollars last year, including sales to our retail segments, which totaled approximately thirty one point six million dollars versus twenty one million dollars last year. 25:05 I am also very happy with the work we've done to refocus and streamline our efforts at Camuto. As previously discussed, during twenty twenty, we exited many of our brands that were unprofitable and taking focus away from our core and refocused our efforts around four major go forward brands. In Q3, three of these four go forward footwear brands grew wholesale sales compared to twenty nineteen. 25:31 As Roger mentioned, we had a soft refresh of the Vince Camuto brand in Q3. This refresh had a significant positive impact on our vc.com site, which grew fifty point four percent compared to the third quarter of twenty twenty and sixty two percent compared to twenty nineteen. Not only were the quarterly sales of the highest that the digital site has seen, but we also produced the highest margin rate as well. This is a great example of the synergies we can bring to bear. 25:58 The combination of the digital retail expertise and infrastructure from DSW combined with the brand marketing and product knowledge of Camuto has pushed vc.com to its best quarter ever. 26:10 Our consolidated gross profit increased eighty nine point three percent to three hundred and thirteen point six million dollars in the third quarter versus one hundred and sixty five point seven million dollars in the prior year and fourteen point seven percent compared to third quarter of twenty nineteen, benefited by increased penetration of our top fifty brands, continued recovery, and seasonal product, as well as growth in our vertical brands and improved margin in the athletic category from full price selling. 25:58 Our consolidated gross margin sharply improved to thirty six point seven percent the third quarter versus twenty five point four percent the prior year and twenty nine point three percent in twenty nineteen. 26:48 At our U.S. Retail segment, gross margin was strong at thirty six point four percent in the third quarter versus twenty three point four percent last year and twenty eight point one percent in the third quarter of twenty nineteen marking the highest quarterly gross margin rate in DSW’s history. 27:05 Merchandise margin of fifty three point one percent was also an all-time record for DSW. The margin upside was driven by several factors. First, we saw a huge growth in our higher margin Camuto produced products. During Q3, DSW’s vertical brand sales increased hundred and seventeen percent compared to twenty nineteen. 27:26 Second, as we have shifted our assortment mix, we had notably less product to clear and regular price demand accounted for eighty eight percent of the total demand in the quarter, compared to eighty three percent in twenty nineteen. 27:42 Canada produced record gross margins as well at thirty eight point two percent versus last year's thirty point seven percent and above third quarter of twenty nineteen’s thirty six percent. This was primarily due to a pullback in promotional activity and tight inventory management. 27:59 We also set records at Camuto where the gross margin rate was thirty one point one percent in the third quarter versus twenty six point four percent last year, and over one hundred and forty basis points above third quarter of twenty nineteen, primarily related to lower [close outs] [ph], fewer vendor allowances, and less promotional activity on the vincecamuto.com site. 28:19 When looking at inventory, we believe our inventory management has been a real strategic differentiator for us this quarter, a trend that will continue through Q4 and into twenty twenty two. As we have said many times in the past, when the industry is chasing limited inventory, our ability to self-produce product, as well as our influential relationships with our vendor partners as a result of our scale allows us to win the battle for inventory. 28:44 We ended the quarter with inventories of six hundred and two million dollars versus five hundred and forty six million dollars last year. Inventory for the retail segments ended the quarter flat to twenty nineteen, which we believe is a true competitive differentiator as we head into Q4 and spring of twenty twenty two. This is a remarkable achievement given that we started the quarter Q3 down nineteen percent in our retail segments, especially in this constrained environment. 29:13 We're very proud of the work our teams have done here and want to highlight again that this gives us the inventory we need to fuel Q4 sales. When you consider, we delivered Q3 comps at our U.S. Retail segment down only two percent to twenty nineteen on inventory down nineteen percent, we believe we are very well positioned for the fourth quarter compared to much of the industry, which is still scrambling for inventory. 29:38 In the third quarter, consolidated SG&A for all of our businesses was two fourteen million dollars, up nine point six percent versus last year, but essentially flat to twenty nineteen. However, as we have seen throughout twenty twenty one year-to-date, marketing and employee compensation costs are higher by about two five million dollars combined compared to twenty nineteen, as we strategically redeploy a portion of our record gross profit into customer and employee acquisition and retention. 30:08 We intend to continue this strategic investment into Q4, especially as we build our authority in the post-holiday athletic spike that occurs in the market each year similar to the strategy we deployed with back to school, and the strong successes we saw there. 30:24 Our adjusted SG&A ratio for the third quarter was twenty five point one percent of sales well below last year's level of twenty nine point nine percent and above third quarter of twenty nineteen’s level of twenty two point nine percent. Depreciation and amortization totaled eighteen point nine million dollars in the third quarter, compared to twenty two point one million dollars in the prior year. 30:46 Adjusted operating profit for Designer Brands was an all-time quarterly record of one hundred and two point two million dollars in the third quarter, versus a loss of twenty seven point seven million dollars last year, and sixty two point four million dollars in the third quarter of twenty nineteen. 31:02 In terms of adjusted operating margin, we delivered a rate of twelve percent well above twenty nineteen’s rate of six point seven percent. This level of profitability is exceptional, and I am thrilled with where we ended the quarter. Each and every segment contributed to this achievement at record levels. And as we will discuss in a moment, I'm even more excited about the things we believe will continue to drive growth well beyond Q3. 31:28 We had seven point seven million dollars of interest expense during the third quarter compared to nine million dollars in the prior year. Our effective tax rate was twenty nine point five percent in the third quarter versus forty nine point four percent last year. Total weighted average diluted shares during the quarter were seventy seven point one million, compared to seventy two point three million last year. The increase was primarily driven by a return to positive earnings and related dilution stock based compensation awards. 31:57 Third quarter reported net income was eighty point two million dollars or one point zero four dollars per diluted share, which included after tax benefits of thirteen point six million dollars. Excluding these benefits, adjusted EPS was zero point eight six dollars per diluted share for the quarter. Both our net income and EPS are also all-time quarterly records, even when taking into account the elevated interest that we are paying at the moment. 32:26 We have seen tremendous improvement in our financial health and liquidity position over the past year. Looking back at the onset of COVID, we took actions to fortify our liquidity and financial flexibility with an asset based revolving credit facility and senior secured loan, which we installed in August of twenty twenty. Since then, we have been laser focused on reducing our debt position and rebuilding our financial strength. 32:49 In fact, assuming we receive our twenty twenty CARES Act tax refund during the fourth quarter, if we take the amount of cash principal, we will still owe lenders at the end of the year and subtract out the amount of cash and investments we anticipate holding at the end of the year, I expect that difference to be less than fifty million dollars. That same calculation would have been two eighty four million dollars at the start of this year and seventy eight million dollars at the end of twenty nineteen. 33:17 With the business back into growth mode, and this return to financial strength that exceeds even twenty nineteen levels, we will have the flexibility to consider paying off or refinancing the term loan, which would free us to consider resuming dividends and share repurchases. 33:32 In total, we are pleased with our liquidity position, which includes cash and availability under the revolver. We are in a healthy position with total liquidity at the end of the quarter at four hundred and seventy seven point eight million dollars versus four hundred and nine point five million dollars for the same period last year. 33:49 We had two hundred and twenty seven point nine million dollars of debt at the end of the third quarter versus three thirty seven point one million dollars last year and down one hundred and six point nine million dollars since the end of fiscal twenty twenty. At the end of the quarter, we had eighty three point one million dollars of cash versus one hundred and fourteen point five million dollars last year and have three hundred and ninety four point seven million dollars available to draw in our revolving credit facility. 34:17 During the quarter, we opened four new stores in the U.S. and one new store in Canada and closed four in the U.S. resulting in a total of five fifteen U.S. stores and one hundred and forty four Canadian stores. 34:29 Last quarter, we said that we expected for fall of fiscal twenty twenty one that we would be able to achieve operating margin slightly above fall of fiscal twenty nineteen’s levels. Our record setting performance in Q3 puts us well above that mark. And as mentioned, we expect continued strong momentum throughout Q4. 34:48 As such, we are introducing new guidance as follows. Q4 adjusted EPS will be in the range of zero point one zero dollars to zero point one five dollars driven by revenues up mid-single digits compared to twenty nineteen at our retail segments, slightly offset by revenues at our wholesale segment down due primarily to the exit of unprofitable brands. Together, our consolidated Designer Brands’ revenues are expected to be flat to up low-single digits compared to twenty nineteen with the fourth quarter. 35:17 With that, we'll open up the call for questions. Operator?

35:23 Thank you. [Operator Instructions] Today's first question comes from Steve Marotta with C.L. King & Associates. Please go ahead.

35:55 Roger and Jared, good morning and congratulations on a terrific third quarter, well done.

36:00 Thanks Steve.

36:01 Sure. Can you talk a little bit about, and you alluded to this on the call, the supply chain, your actions earlier this year to be more aggressive bringing in product and allude if you will, some of the supply chain issues that are currently manifesting across the industry seems to be again, you're sort of benefiting from those decisions? Can you talk a little bit about maybe cadence of what you expect to come in either from a Camuto or a branded standpoint over December and January and February? And how current supply chain issues are really simply not affecting you as much as the industry? If you can just go into a little detail there it'd be helpful.

36:44 Yes, Steve, I think the big thing as it relates to supply chain is, it's the strategy that we put in a couple of years go of narrowing the number of brands we buy inventory from. So that we are now more relevant with these top fifty brands, so that when they're in a situation and we talked about this last quarter of making a decision of who's going to get product, you want to be number one, two or three in that lineup. And I think those decisions strategically, a couple of years ago have materially helped our business. 37:16 And then when you think about a category like athletic where, remember, I mentioned this in the comments that sixty percent of our athletic brands that we carry comped over twenty five percent to twenty nineteen. So, we're investing inventory and we're driving results. So, you know how this goes. That's who gets the inventory, are the folks that are driving results. So, I think that’s step number one. 37:39 The second one was, our merchant and planning and finance teams partnered to say, yes, this is what our open to buy looks like, but we also recognize it's going to be fallout. And so, let's plan above that and that as a finance guy myself historically that makes you a little nervous, but it was the right thing to do for the business. And I think our team has done a phenomenal job managing the inventory through all of this. And those are the two big things as what I would tell you. 38:07 Then as we move forward, we're planning to run the business the same way because we don't see this softening anytime in the near term. So, I think we are in a very good position And again, as I said, we went from down nineteen to flat inventory at a time when our sales were performing well. So really, really proud of our team and the work they've done.

38:31 That's great. Can you talk a little bit about your Camuto penetration goals inside the DSW stores for fiscal twenty twenty two? Actually where you land, I know that's accelerated as the year has progressed, so maybe where you will land there in fiscal twenty twenty one and what your expectations are for twenty two?

38:51 Yeah, we are – I don't think we're prepared yet to share what twenty twenty two is going to look like, but I think we are really happy with the progress that's been made at Camuto, and it's less about what the penetration is to DSW, but it's about what that team has accomplished. I mean, again, I had this in the commentary, but they went out and understood the customer. 39:13 They looked at the channels in which that consumer shops. And they built product for that customer, and then they made investments in inventory on key items and it has paid off whether it be through vincecamuto.com, through selling it, on wholesale which comped to twenty nineteen, I think that's an important point for folks that have doubted our ability to run the Camuto organization in a positive manner. 39:35 On the wholesale side, we grew sales to twenty nineteen for the Camuto brand. And then you add into that the ability to go direct to consumer through DSW. Those are all positive signs for what we've done with the Camuto organization.

39:52 That's very helpful. And I just have one question. My favorite question. Can you talk a little bit about the [tack-on sales] [ph] during back to school for kids? A lot of the kids strategy when you were introducing it was the mom [attacking] [ph] on a purchase, can you talk a little bit about how successful that was in the most recent back to school season? Thank you.

40:14 Yeah. I think it's really about that market share gain that I talked about and it is growing the kid’s business, which I said thirty five percentage points to the total market is what we experienced, which is pretty amazing from a gross standpoint. And then what we're seeing is, as I said in the quarter, it was the second largest acquisition, customer acquisition quarter in the history of the company and that comes by having athletic and kid’s and the digital investments we’re making. So, we are seeing that it's introducing us to a new consumer and it's adding to the business we were already doing with that family.

40:54 Steve, one data point I would remind you and I think we mentioned it in the script is, during that back to school timeframe, while the kids penetration did significantly increase and we quoted we hit around fifteen percent, it also pulled the entire comp for the entire box up to positive to twenty nineteen. 41:14 So, during that time period, there were add-on sales and the whole entire box started comping positive, which again, we think is very, very good.

41:23 And Steve, I think and this is for everyone on the call that the decision to get after athleisure has opened up the kid’s windows that we've talked about, back to school and holiday, but it's also opening up windows where we can now play more aggressively then as we mentioned, the post-holiday when everyone's going to live out their New Year's resolutions and get back in shape we're going to play there. And we've never played there. 41:50 We would have been focused on selling thirty nine dollar boots, and we can sell full price athletic product in that window. Those are ways in which these investments, these strategic decisions we made a couple of years ago are paying off for our organization.

42:07 Thank you. And our next question today comes from Gaby Carbone from Deutsche Bank. Please, go ahead.

42:14 Hi, good morning. Thank you so much for taking my question.

42:19 Hi Gaby.

42:20 Hey. Just wondering if you can maybe dig into your top line outlook for the fourth quarter, you know the acceleration kind of what you're expecting in the third quarter. And then any additional color on quarterly trends? I know you talked about having a very good Black Friday, and then as you move to next year, just kind of how you're thinking about consumer demand, especially as we lap stimulus payments in the first quarter? Thanks.

42:43 Yeah, Gaby, I'll take that first part. While we gave overall guidance for revenues and flat to up low-single digits, under the covers it's a little more dramatic. So, we're seeing continued momentum building in our retail channels. And so, we're going to be up, I'd say mid-single digits in retail and the data points we gave around Q4 already is giving a lot of validation to that wholesale, because we strategically exited those brands that we intended to exit during twenty twenty, you know, we do think that we'll probably see some flattish to down a little bit in wholesale, but in the brands go forward that we're carrying those will continue to be strong and see growth. So, that's kind of how it all shakes out on the top line. 43:31 And I apologize. The second part of your question?

43:35 Consumer demand next year.

43:36 [Indiscernible] yeah.

43:39 Yeah. I think we mentioned this throughout the year as these stimulus packages hit, we never really experienced the same level of impact that some others itself because our customer base skews more to household incomes over one hundred thousand dollars, which had not received as large of a benefit as perhaps some others. But we're not ready to give guidance to twenty twenty two yet, but again, we're feeling really, really confident in our business, whether it was a result – the record results we had in Q2, the record results in Q3, and the really strong performance we've had Q4 to date.

44:20 Great. Thanks. And just a quick follow-up. You obviously experienced really strong gross margins in the third quarter. Just wondering if you can provide some color on how you're thinking about that line item for the fourth quarter and maybe how freight will impact what transpired in the third?

44:35 Yes. I'll give you a few data points. And as you know, we don't typically dive too deep into gross profit and SG&A for guidance, but I will give you some color. So, from just the overall gross profit dollars, obviously, you're going to see Q4 slightly lower, even if rate were to stay the same just because if you do the math, the revenues are a little bit lower in Q4 than in Q3, but we do have a couple of things that are unique to Q4. 45:01 One, shipping is always higher it's holiday gift giving time period. So, you’re going to have a few million dollars of shipping both for the U.S. and in Canada and at vc.com that wasn’t as dramatic in Q3. 45:15 And then also, as we've mentioned a couple of times in the calls, we are making strategic investments to establish our authority in that post holiday athletic, very similar to as we did in back to school, especially in the leading part, the early part of back to school. So, I think you're going to see about twenty million dollars or so pivoted towards that with some SG&A as well to support that because it was very successful for us and back to school. 45:45 And then lastly, there's a little less than ten million dollars baked in for expedited shipping or freight because we see product that if we can get access to it, we want to get it in and into the cycle or into the channel as soon as possible. So, we've got that built in there as well.

46:07 Gaby, I want to make certain that I hit on one thing. I've read a couple of the notes that you guys have [indiscernible], the Q3 sales result was phenomenal in our view. And I want to share with you why. We had sixteen days out of the roughly ninety for the quarter, where we were promotional, meaning, you're out there telling people here’s some offer. That number in twenty nineteen was fifty one days, so sixteen versus fifty one. 46:38 We also only had seven million direct mail pieces that went out versus thirty nine million in twenty nineteen. And direct mail as you know usually has an offer, always has an offer attached for the most part. So, to say that we were able to post the results in DSW we did, while not promoting to that level. 46:57 Again, I want to reinforce how important that is to the health of our business, and, oh, by the way, when we're not promoting, we're adding new customers to our file, which if you look at the long term history of this organization, as that file is growing, that is the future lifeblood of the company. And so, I'm really, really pleased with the results we had top line wise in third quarter.

47:22 Got it. Thank you so much. That's super helpful. Best of luck for holiday.

47:25 Thank you.

47:27 And our next question today comes from Dana Telsey at Telsey Advisory Group. Please go ahead.

47:33 Good morning. Nice to see the progress. When you think about, you mentioned – when you mentioned on the vertical brands, the opportunity for greater than fifteen hundred basis point margin opportunity, where do you see that coming from? How does that grow? And then I have two follow ups. Thank you.

47:51 Yeah. I think Dana, this is the exciting thing that as we've shifted this assortment to be targeted to the top fifty brands in retail, obviously, as you know, we're selling then a lot of things at regular price. And we've done such a great job building product based on what we know about our customer and what we can learn from the brands we carry that the gap between what we sell something with our own brand name on it to that compare at price. That gap doesn't have to be as aggressive as what we had originally thought. And so that is where we are seeing margin up side. 48:28 So, being able to take price-ups on items that you've designed and sourced yourself and as an organization, that's something that our planning and merchant teams are looking at day-in and day-out. We're taking price-ups where it's appropriate based on the supply and demand curve. So, that's really, really exciting. And again, it is a testament to our Camuto team and the quality of product that we know that team can design and source for us.

48:58 And then, in regards to inflation, how are you thinking of that and how does it impact, and what are you doing with your pricing?

49:08 Again, given that we are so invested in these top fifty brands, we're surfing off of the waves that are being created there. It's probably the best way to describe it. And all of the pricing increases that we have felt or cost increases, that's embedded in what we're anticipating for fourth quarter. And so far, we feel like we've done a nice job of managing those things.

49:33 Got it. And then just lastly on Nike, when does Nike fully exit the store? I know, I think the order stopped in September. It's still in your stores on the website. When does that exit and with the strength in athletic, what brands – other brands are you seeing the most growth from? Thank you.

49:52 We’ll continue to sell the [Swiss product] [ph] as long as it's on our floor, and it'll go away when the consumers demand it all. And we can't get into the specific brands, but I want to reinforce the point I made that sixty percent of the athletic brands we carry and all you have to do is look at our site and go to a store and see it. They comped over twenty five percent to twenty nineteen. 50:16 So, we are getting strong results really across our entire athletic portfolio. Again, because we've known the customer is buying this product somewhere and they've been buying it from the competitors in the past. And by us offering those goods, it's adding to their basket with DSW.

50:39 Thank you. [Operator Instructions] Today's next question comes from Jay Sole with UBS. Please go ahead.

50:51 Great. Thank you so much. Maybe Jared, is it possible to just summarize, maybe with some quantification, why gross margin in Q3 was up so much versus Q3 of twenty nineteen? So, if it was up seven twenty basis points, there's the vertical brand sales that's an important piece of the mix, there's the full price selling overall, maybe mix shift to [indiscernible], there's different drivers happening here. Can you sort of break down the key points and just explain like how much really contributed overall? So, we just understand really what the drivers are and where the gross margin is going?

51:24 Yeah. You hit most of them right there. So, I'm glad that that message came through, when really you look at our merchandise margin that was the vast majority of what was going on. And as we mentioned a few times in the call, it was all about the reg price selling. We saw strong reg price positive comps at the expense of extreme markdown leverage. 51:49 So, I mean that's the ideal playbook, you know, even in Q4 as Roger mentioned, Q4 of twenty nineteen was heavily promotional as we were liquidating out of excess inventory both at DSW and Camuto, and we're not doing that in Q4 of this year. So, that merchandise margin story is going to remain a very, very strong one. 52:11 We saw leverage on our occupancy line, slight, a little bit and then on the DCFC. So, those are the big pieces, but it really was all about that merchandise margin. And the vertical brands that you mentioned being able to see those turn back on into growth mode, up one hundred and seventeen, I think it was percent to twenty nineteen at those elevated margins that all plays right into that.

52:39 And Jay, I think one other piece to remember, as we've narrowed the number of brands we are buying product from, we are able to invest deeper into the items we carry from the top fifty brands. So, it's retail one hundred and one. Your better in stocks, drives conversion, drives more rig price selling, and that has worked and will continue to work as we move forward into twenty twenty two.

53:07 All right, understood. I guess, when it comes to the brand portfolio, is it possible to, sort of give us an idea, and I'm just giving the ballpark number, let's just say the brand portfolio is two fifty million in sales or something like that. What percentage of that is the four key brands and what percentage of it is being sold through DSW, what percentage is still like pure wholesale? Can you just give us an idea after you've done all this work to reset the brand portfolio, sort of where does this stand right now?

53:33 Yes. What I would share is, almost all of the revenue is with the four key brands. I mean that was very strategic. We cut out almost all production in twenty and the only production we ramped back on were the four key brands. So, that's that. Of those four key brands, J.Lo is only sold at DSW. It's still like a growing brand, but – and then we do have the vincecamuto.com site, which is also a direct to consumer that flows into that. And that's got very aggressive growth targets on it as we've mentioned before. 54:11 So, those are going to be the two kind of that you see where we play a lot and interplay and then the Jessica Simpson side has been really, really strong both at DSW, as well as outside of DSW, and we're seeing that brand have a really big moment right now.

54:29 Jay, I think the big thing is, we are continuing to focus on our key accounts. And our key accounts are ability to go direct to consumer through our dot com and store channels that we own and control and our key accounts, meaning Nordstrom’s, Dillard’s, Macy’s, Amazon. Those are the people that we are focusing our attention on and we need to grow with those folks. 54:55 They are our key partners. And by narrowing the number of brands, I think at one point when we acquired this company, there were over twenty brand/labels that they were working on when we were making a lot of product for other retailers in private brand areas. And that did not allow us to play with focused tempo and disruption. And by narrowing the number of brands we carry and limiting the number of people we're selling to. It's really allowed the organization to focus that I think is the key thing that we have to call out.

55:30 Got it. Understood. Thank you, Roger.

55:36 Well ladies and gentlemen this concludes the question and answer session. I'd like to turn the conference back over to the management team for any final remarks.

55:45 Thanks everybody for dialing in. And again, really excited about the progress of our business in the quarter and as we've headed into the holiday. Thanks everybody and happy holidays.

55:56 Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.