Published: 2021-08-31 00:00:00 ET

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Business Operations- Designer Brands Inc. is one of North America's largest designers, producers and retailers of footwear and accessories. We operate in three reportable segments: the U.S. Retail segment, the Canada Retail segment, and the Brand Portfolio segment. The U.S. Retail segment operates the DSW Designer Shoe Warehouse ("DSW") banner through its U.S. stores and e-commerce site. The Canada Retail segment operates The Shoe Company, Shoe Warehouse, and DSW banners through its Canada stores and e-commerce sites. The Brand Portfolio segment earns revenue from the sale of wholesale products to retailers, commissions for serving retailers as the design and buying agent for products under private labels (which we refer to as "First Cost"), and the sale of branded products through the direct-to-consumer e-commerce site at www.vincecamuto.com. An integral part of the Brand Portfolio segment is our equity investment in ABG-Camuto, LLC ("ABG-Camuto"), which is a partnership between Camuto LLC, a wholly-owned subsidiary doing business as "Camuto Group," and Authentic Brands Group LLC, a global brand management and marketing company. Camuto Group has a 40% stake in ABG-Camuto, a joint venture that owns several intellectual property rights, including Vince Camuto, Louise et Cie, and others, and focuses on licensing and developing new category extensions to support the global growth of these brands. Camuto Group has a licensing agreement with ABG-Camuto whereby we pay royalties on our net sales from the brands owned by ABG-Camuto, subject to guaranteed minimums. Camuto Group also owns footwear and certain handbag licensing rights of Jessica Simpson, Lucky Brand and, through a joint venture, Jennifer Lopez. Our other operating segments are below the quantitative and qualitative thresholds for reportable segments and are aggregated into Other for segment reporting purposes.

Basis of Presentation- The accompanying unaudited, condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the U.S. ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, we do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The condensed consolidated financial position, results of operations and cash flows for these interim periods are not necessarily indicative of the results that may be expected in future periods. The balance sheet at January 30, 2021 has been derived from the audited financial statements at that date. The financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the 2020 Form 10-K.

Fiscal Year- Our fiscal year ends on the Saturday nearest to January 31. References to a fiscal year refer to the calendar year in which the fiscal year begins.

Accounting Policies- The complete summary of significant accounting policies is included in the notes to the consolidated financial statements as presented in our 2020 Form 10-K.

Impact of COVID-19- In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. On March 18, 2020, to help control the spread of the virus and protect the health and safety of our customers, employees, and the communities we serve, we temporarily closed all of our stores in the U.S. and Canada. In addition, we took several actions in late March 2020 to reduce costs and operations to levels that were more commensurate with then-current sales, including furloughs and pay reductions. As this continues to be an unprecedented period of uncertainty, we have made and may continue to make adjustments to our operational plans, inventory controls, and liquidity management, as well as changes to our expense and capital expenditure plans.

During the second quarter and into the third quarter of fiscal 2020, we re-opened all of our stores, discontinued the furlough program, and restored pay for our associates that had taken pay reductions. Beginning in July 2020, we initiated an internal reorganization and reduction of our workforce with additional actions taken throughout fiscal 2020 and into the first quarter of fiscal 2021, resulting in the elimination of approximately 1,000 associate positions. The severance charges recorded as a result of this reorganization are included in our severance discussion below.

Although operating results have improved throughout the first half of fiscal 2021, we continue to experience adverse impacts due to COVID-19, including temporary store closures, reduced hours and other requirements in certain areas where government-imposed restrictions were mandated, and global supply chain challenges. Our retail customers in the Brand Portfolio segment have had and are having similar experiences.

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As a result of the material reduction in net sales and cash flows during fiscal 2020, we updated our impairment analyses for our U.S. Retail and Canada Retail segments at the store-level, which represents the lowest level for which identifiable cash flows are independent of the cash flows of other assets. The carrying amount of the store asset group, primarily made up of operating lease assets, leasehold improvements and fixtures, is considered impaired when the carrying value of the asset group exceeds the expected future cash flows from the asset group. The impairment loss recognized is the excess of the carrying value of the asset or asset group over its fair value (categorized as Level 3 under the fair value hierarchy). Fair value at the store level is typically based on projected discounted cash flows over the remaining lease term. In addition, we evaluated other long-lived assets based on our intent to use such assets going forward. During the three months ended August 1, 2020, we recorded an impairment charge of $6.7 million for the U.S. Retail segment. During the six months ended August 1, 2020, we recorded impairment charges of $92.8 million ($73.1 million and $19.7 million for the U.S. Retail segment and Canada Retail segment, respectively). Also during the six months ended August 1, 2020, we recorded an impairment charge of $6.5 million for the Brand Portfolio segment customer relationship intangible resulting in a full impairment due to the lack of projected cash flows over the remaining useful life (categorized as Level 3 under the fair value hierarchy).

As a result of the material reduction in net sales and cash flows due to the temporary closure of all of our stores, the decrease in net sales from our retailer customers and the decrease in the Company's market capitalization due to the impact of COVID-19 on macroeconomic conditions, we performed an impairment analysis for goodwill and other indefinite-lived intangible assets during the first quarter of fiscal 2020. We calculated the fair value of the reporting units with goodwill primarily based on a discounted cash flow analysis (categorized as Level 3 under the fair value hierarchy). Our analysis concluded that the fair value of the First Cost reporting unit within the Brand Portfolio segment did not exceed its carrying value. Accordingly, during the six months ended August 1, 2020, we recorded an impairment charge of $20.0 million for the First Cost reporting unit in the Brand Portfolio segment, resulting in a full impairment.

The U.S. Retail segment inventory is accounted for using the retail inventory method and is stated at the lower of cost or market. Under the retail inventory method, the valuation of inventories reflects reductions for merchandise marked down with charges to cost of sales. As a result, earnings are negatively impacted as the merchandise is marked down prior to sale. Inventories for the Canada Retail and Brand Portfolio segments are accounted for using moving average cost method and are stated at the lower of cost or net realizable value. For all inventories, we also monitored excess and obsolete inventories in light of the temporary closure of stores during our fiscal 2020 peak spring selling season and reduced traffic experienced since re-opening stores. During the six months ended August 1, 2020, we recorded $64.0 million of additional inventory reserves over the same period of the previous year.

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which, among other things, provided employer payroll tax credits for wages paid to employees who were unable to work over a defined period and options to defer payroll tax payments. Based on our evaluation of the CARES Act, we qualified for certain employer payroll tax credits, which were treated as government subsidies to offset related operating expenses, as well as the deferral of payroll and other tax payments in the future. Similar credits were also available in Canada and continue to be provided. During the three months ended July 31, 2021 and August 1, 2020, the qualified government credits reduced our operating expenses by $1.0 million and $3.5 million, respectively, on our condensed consolidated statements of operations. During the six months ended July 31, 2021 and August 1, 2020, the qualified government credits reduced our operating expenses by $3.7 million and $7.9 million, respectively, on our condensed consolidated statements of operations. As of July 31, 2021, we had $10.0 million of deferred qualified payroll and other tax obligations, half of which is included in accrued expenses on the condensed consolidated balance sheets that we expect to pay at the end of fiscal 2021, with the remaining included in other non-current liabilities on the condensed consolidated balance sheets that we expect to pay at the end of fiscal 2022.

We recorded our income tax expense, income tax receivable, and deferred tax assets and related liabilities based on management’s best estimates. Additionally, we assessed the likelihood of realizing the benefits of our deferred tax assets. Our ability to recover these deferred tax assets depends on several factors, including our ability to project future taxable income. One of the provisions of the CARES Act allows net operating losses generated within tax years 2018 through 2020 to be carried back up to five years, including years in which the U.S. federal statutory tax rate was 35%, as opposed to the current rate of 21%. In evaluating future taxable income, significant weight is given to positive and negative evidence that is objectively verifiable. As a result of the losses incurred in fiscal 2020 due to COVID-19, we are in a three-year cumulative loss position as of July 31, 2021, which is significant objective negative evidence in considering whether deferred tax assets are realizable. Such objective evidence limits the ability to consider other subjective evidence, such as the projection of future taxable income. A valuation allowance has been recognized as a reserve on the total deferred tax asset balance due to the uncertainty of realization of our loss carry forwards and other deferred tax assets. Our effective tax rate changed from 32.5% for the six months ended

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August 1, 2020 to 3.6% for the six months ended July 31, 2021. The rate for the six months ended July 31, 2021 is the result of maintaining a full valuation allowance on deferred tax assets while also recording net discrete tax benefits, primarily as a result of adjustments to our estimated fiscal 2020 return reflecting implemented tax strategies. The rate for the six months ended August 1, 2020 is the result of carry back of losses to a tax year where the U.S. federal statutory tax rate was 35%.

The impacts from the COVID-19 pandemic remain challenging and unpredictable. While trends improved during the first half of fiscal 2021, we cannot reasonably estimate the extent to which our business will continue to be affected by COVID-19 and to what extent the recent improved trends will continue. For instance, restrictions have recently been reinstated in certain locations within the U.S., and it is unclear whether these restrictions will continue and expand or if COVID-19 will result in long-term changes in consumer behavior. The ongoing and prolonged nature of the outbreak may lead to further adjustments to our operations. As such, the ultimate impacts of COVID-19 to our businesses remain highly uncertain and will depend on future developments, including global supply chain disruptions, the variants of COVID-19, and the global availability and use of vaccines, which are highly uncertain and cannot be predicted. As a result, we may have future write-downs or adjustments to inventories, receivables, long-lived assets, intangibles, goodwill, and the valuation allowance on deferred tax assets.

Severance- During the three months ended July 31, 2021 and August 1, 2020, we incurred severance costs of $1.2 million and $7.3 million, respectively. During the six months ended July 31, 2021 and August 1, 2020, we incurred severance costs of $2.6 million and $9.0 million, respectively. These costs are included in operating expenses in the condensed consolidated statements of operations. As of July 31, 2021, January 30, 2021 and August 1, 2020, we had accrued severance of $4.9 million, $6.5 million and $8.4 million, respectively, included in accrued expenses on the condensed consolidated balance sheets.

Gain on Settlement- During the three months ended August 1, 2020, we recognized a gain of $9.0 million, recorded to operating expenses in the condensed consolidated statements of operations, due to a settlement with a vendor for costs incurred on internal-use software that was capitalized and impaired in a previous fiscal year. During the three months ended August 1, 2020, we collected $4.2 million, net of legal costs incurred, and recorded a $4.8 million receivable included in receivables, net, on the condensed consolidated balance sheets, which has been subsequently received.

Principles of Consolidation- The condensed consolidated financial statements include the accounts of Designer Brands Inc. and its subsidiaries, including variable interest entities. All intercompany accounts and transactions have been eliminated in consolidation. All amounts are in U.S. dollars.

Use of Estimates- The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and reported amounts of net sales and expenses during the reporting periods. Certain estimates and assumptions use forecasted financial information based on information reasonably available to us, along with the estimated, but uncertain, future impacts of COVID-19. Significant estimates and assumptions are required as a part of accounting for sales returns allowances, customer allowances and discounts, gift card breakage income, deferred revenue associated with loyalty programs, valuation of inventories, depreciation and amortization, impairments of long-lived assets, intangibles and goodwill, lease accounting, income taxes, and self-insurance reserves. Although we believe these estimates and assumptions are reasonable, they are based on management's knowledge of current events and actions we may undertake in the future. Changes in facts and circumstances may result in revised estimates and assumptions, and actual results could differ from these estimates.

Cash, Cash Equivalents, and Restricted Cash- Cash and cash equivalents represent cash, money market funds and credit card receivables that generally settle within three days. Restricted cash represented cash that is restricted as to withdrawal or usage and consists of a mandatory cash deposit maintained for certain insurance policies.

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows:

(in thousands)			July 31, 2021						January 30, 2021						August 1, 2020
Cash and cash equivalents			$	46,458					$	59,581					$	206,720
Restricted cash, included in prepaid expenses and other current assets			1,546						—						—
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows			$	48,004					$	59,581					$	206,720

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Fair Value- Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are categorized using defined hierarchical levels related to the subjectivity associated with the inputs to fair value measurements as follows:

•Level 1 - Quoted prices in active markets for identical assets or liabilities.

•Level 2 - Quoted prices for similar assets or liabilities in active markets or inputs that are observable.

•Level 3 - Unobservable inputs in which little or no market activity exists.

The carrying value of cash and cash equivalents, restricted cash, receivables, and accounts payables approximated their fair values due to their short-term nature. The carrying value of borrowing under our ABL Revolver and our previous senior unsecured revolving credit agreement ("Credit Facility") approximated the carrying value. As of July 31, 2021, the fair value of borrowings under our Term Loan was $250.2 million compared to the carrying value of $237.5 million. The fair value of debt borrowings was estimated based on current interest rates offered for similar instruments (categorized as Level 2 under the fair value hierarchy).

Impairment of Long-Lived Assets- Refer to section above, Impact of COVID-19, regarding impairment charges of long-lived assets during fiscal 2020. During the three months ended July 31, 2021, we recorded an impairment charge of $1.2 million in the U.S. Retail segment for abandoned equipment we are replacing.

Disaggregation of Net Sales- The following table presents net sales disaggregated by product and service category for each segment:

			Three months ended												Six months ended
(in thousands)			July 31, 2021						August 1, 2020						July 31, 2021						August 1, 2020
Net sales:
U.S. Retail segment:
Women's footwear			$	467,518					$	253,539					$	872,818					$	513,102
Men's footwear			168,218						85,012						300,165						155,367
Kids' footwear			54,112						32,232						108,844						61,415
Accessories and other			33,245						23,194						61,924						41,166
			723,093						393,977						1,343,751						771,050
Canada Retail segment:
Women's footwear			30,230						25,329						50,661						41,301
Men's footwear			15,805						13,970						25,333						20,773
Kids' footwear			9,554						8,231						19,067						13,787
Accessories and other			1,996						2,052						3,128						3,050
			57,585						49,582						98,189						78,911
Brand Portfolio segment:
Wholesale			42,715						15,563						91,358						82,867
Commission income			2,377						5,018						5,708						10,141
Direct-to-consumer			5,437						9,877						10,890						19,563
			50,529						30,458						107,956						112,571
Other			—						22,266						—						35,889
Total segment net sales			831,207						496,283						1,549,896						998,421
Elimination of intersegment sales			(13,872)						(6,569)						(29,406)						(25,924)
Total net sales			$	817,335					$	489,714					$	1,520,490					$	972,497

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Deferred Revenue Liabilities- We record deferred revenue liabilities, included in accrued expenses on the condensed consolidated balance sheets, for remaining obligations we have to our customers. The following table presents the changes and total balances for gift cards and our loyalty programs:

			Three months ended												Six months ended
(in thousands)			July 31, 2021						August 1, 2020						July 31, 2021						August 1, 2020
Gift cards:
Beginning of period			$	30,809					$	30,908					$	34,442					$	35,461
Gift cards redeemed and breakage recognized to net sales			(19,210)						(11,343)						(36,380)						(24,868)
Gift cards issued			17,092						10,354						30,629						19,326
End of period			$	28,691					$	29,919					$	28,691					$	29,919
Loyalty programs:
Beginning of period			$	12,955					$	14,568					$	11,379					$	16,138
Loyalty certificates redeemed and expired and other adjustments recognized to net sales			(6,008)						(4,277)						(10,904)						(10,886)
Deferred revenue for loyalty points issued			8,308						4,506						14,780						9,545
End of period			$	15,255					$	14,797					$	15,255					$	14,797

Schottenstein Affiliates

As of July 31, 2021, the Schottenstein Affiliates consist of entities owned or controlled by Jay L. Schottenstein, the executive chairman of our Board of Directors, and members of his family. As of July 31, 2021, the Schottenstein Affiliates beneficially owned approximately 17% of the Company's outstanding common shares, representing approximately 52% of the combined voting power, consisting of, in the aggregate, 4.8 million Class A common shares and 7.7 million Class B common shares. The following summarizes the related party transactions with the Schottenstein Affiliates for the relevant periods:

Leases- We lease our fulfillment center and certain store locations owned by the Schottenstein Affiliates. During the three months ended July 31, 2021 and August 1, 2020, we recorded rent expense from leases with Schottenstein Affiliates of $2.7 million and $2.6 million, respectively. During the six months ended July 31, 2021 and August 1, 2020, we recorded rent expense from leases with Schottenstein Affiliates of $5.4 million and $5.3 million, respectively. As of July 31, 2021, January 30, 2021 and August 1, 2020, we had related party current operating lease liabilities of $6.4 million, $8.0 million and $7.9 million, respectively, and non-current operating lease liabilities of $21.3 million, $24.6 million and $28.5 million, respectively.

Other Purchases and Services- During the three months ended July 31, 2021 and August 1, 2020, we had other purchases and services we incurred from the Schottenstein Affiliates of $1.1 million and $1.2 million, respectively. During both the six months ended July 31, 2021 and August 1, 2020, we had other purchases and services we incurred from the Schottenstein Affiliates of $2.5 million.

Due to Related Parties- Amounts due to Schottenstein Affiliates, other than operating lease liabilities, were immaterial for all periods presented.

ABG-Camuto

We have a 40% interest in our equity investment in ABG-Camuto. We have a licensing agreement with ABG-Camuto, pursuant to which we pay royalties on the net sales of the brands owned by ABG-Camuto, subject to guaranteed minimums. During both the three months ended July 31, 2021 and August 1, 2020, we recorded royalty expense for amounts paid to ABG-Camuto of $4.6 million. During the six months ended July 31, 2021 and August 1, 2020, we recorded royalty expense for amounts paid to ABG-Camuto of $9.2 million and $9.0 million, respectively. Amounts due to ABG-Camuto were immaterial for all periods presented.

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Basic earnings (loss) per share is based on net income (loss) and the weighted average of Class A and Class B common shares outstanding. Diluted earnings per share reflects the potential dilution of common shares adjusted for outstanding stock options and restricted stock units ("RSUs") calculated using the treasury stock method.

The following is a reconciliation between basic and diluted weighted average shares outstanding, as used in the calculation of earnings (loss) per share:

			Three months ended												Six months ended
(in thousands)			July 31, 2021						August 1, 2020						July 31, 2021						August 1, 2020
Weighted average basic shares outstanding			72,932						72,142						72,773						72,028
Dilutive effect of stock-based compensation awards			4,687						—						4,498						—
Weighted average diluted shares outstanding			77,619						72,142						77,271						72,028

Stock-based compensation expense consisted of the following:

			Three months ended												Six months ended
(in thousands)			July 31, 2021						August 1, 2020						July 31, 2021						August 1, 2020
Stock options			$	132					$	407					$	385					$	870
Restricted and director stock units			5,776						5,272						12,980						9,726
			$	5,908					$	5,679					$	13,365					$	10,596

The following table summarizes the stock-based compensation award activity for RSUs for the six months ended July 31, 2021:

			Number of shares
(in thousands)			Time-Based RSUs						Performance-Based RSUs
Outstanding - beginning of period			6,445						540
Granted			1,033						—
Vested			(512)						(359)
Forfeited			(225)						(17)
Outstanding - end of period			6,741						164

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The following table provides additional information for our common shares:

			July 31, 2021												January 30, 2021												August 1, 2020
(in thousands)			Class A						Class B						Class A						Class B						Class A						Class B
Authorized shares			250,000						100,000						250,000						100,000						250,000						100,000
Issued shares			87,405						7,733						86,835						7,733						86,747						7,733
Outstanding shares			65,236						7,733						64,666						7,733						64,578						7,733
Treasury shares			22,169						—						22,169						—						22,169						—

We have authorized 100 million shares of no par value preferred shares, with no shares issued for any of the periods presented.

Accumulated Other Comprehensive Loss- For the six months ended August 1, 2020, changes for the balances of each component of accumulated other comprehensive loss, net of tax, were as follows (for all other periods presented, the change was due to foreign currency translation adjustments as shown in the condensed consolidated statements of shareholders' equity):

(in thousands)			Foreign Currency Translation						Available-for-Sale Securities						Total
Accumulated other comprehensive income (loss) - beginning of period			$	(2,668)					$	173					$	(2,495)
Other comprehensive income (loss) before reclassifications			(2,251)						195						(2,056)
Amounts reclassified to non-operating income, net			—						(368)						(368)
Other comprehensive loss			(2,251)						(173)						(2,424)
Accumulated other comprehensive loss - end of period			$	(4,919)					$	—					$	(4,919)

Receivables, net, consisted of the following:

(in thousands)			July 31, 2021						January 30, 2021						August 1, 2020
Customer accounts receivables:
Serviced by third-party provider with guaranteed payment			$	27,638					$	29,615					$	20,268
Serviced by third-party provider without guaranteed payment			76						363						739
Serviced in-house			2,665						4,576						6,248
Income tax receivable			158,890						149,824						—
Other receivables			11,295						12,865						23,973
Total receivables			200,564						197,243						51,228
Allowance for doubtful accounts			(1,193)						(1,194)						(1,988)
			$	199,371					$	196,049					$	49,240

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Goodwill- The following table presents the changes to goodwill by segment:

			Six months ended
			July 31, 2021																		August 1, 2020
(in thousands)			Goodwill						Accumulated Impairments						Net						Goodwill						Accumulated Impairments						Net
Beginning of period by segment:
U.S. Retail			$	93,655					$	—					$	93,655					$	93,655					$	—					$	93,655
Canada Retail			43,086						(43,086)						—						41,610						(41,610)						—
Brand Portfolio			19,989						(19,989)						—						19,989						—						19,989
			156,730						(63,075)						93,655						155,254						(41,610)						113,644
Activity by segment:
Canada Retail-
Currency translation adjustment			1,098						(1,098)						—						(534)						534						—
Brand Portfolio-
Impairment charge			—						—						—						—						(19,989)						(19,989)
			1,098						(1,098)						—						(534)						(19,455)						(19,989)
End of period by segment:
U.S. Retail			93,655						—						93,655						93,655						—						93,655
Canada Retail			44,184						(44,184)						—						41,076						(41,076)						—
Brand Portfolio			19,989						(19,989)						—						19,989						(19,989)						—
			$	157,828					$	(64,173)					$	93,655					$	154,720					$	(61,065)					$	93,655

Intangible Assets- Intangible assets consisted of the following:

(in thousands)			Cost						Accumulated Amortization						Net
July 31, 2021
Definite-lived customer relationships			$	1,444					$	(1,444)					$	—
Indefinite-lived trademarks and tradenames			15,905						—						15,905
			$	17,349					$	(1,444)					$	15,905
January 30, 2021
Definite-lived customer relationships			$	2,909					$	(2,791)					$	118
Indefinite-lived trademarks and tradenames			15,517						—						15,517
			$	18,426					$	(2,791)					$	15,635
August 1, 2020
Definite-lived customer relationships			$	2,843					$	(2,507)					$	336
Indefinite-lived trademarks and tradenames			15,327						—						15,327
			$	18,170					$	(2,507)					$	15,663

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Accrued expenses consisted of the following:

(in thousands)			July 31, 2021						January 30, 2021						August 1, 2020
Gift cards			$	28,691					$	34,442					$	29,919
Accrued compensation and related expenses			49,037						49,864						29,422
Accrued taxes			35,030						24,206						22,624
Loyalty programs deferred revenue			15,255						11,379						14,797
Sales returns			19,204						17,333						20,713
Customer allowances and discounts			2,103						4,579						8,644
Other			72,735						58,523						76,712
			$	222,055					$	200,326					$	202,831

Debt consisted of the following:

(in thousands)			July 31, 2021						January 30, 2021						August 1, 2020
ABL Revolver			$	16,810					$	100,000					$	—
Term Loan			237,500						243,750						—
Credit Facility			—						—						393,000
Total debt			254,310						343,750						393,000
Less unamortized Term Loan debt issuance costs			(7,241)						(8,931)						—
Less current maturities of long-term debt			(62,500)						(62,500)						—
Long-term debt			$	184,569					$	272,319					$	393,000

ABL Revolver- On August 7, 2020, we replaced our Credit Facility with the ABL Revolver, which provides a revolving line of credit of up to $400.0 million, including a Canadian sub-limit of up to $20.0 million, a $50.0 million sub-limit for the issuance of letters of credit, a $40.0 million sub-limit for swing loan advances for U.S. borrowings, and a $2.0 million sub-limit for swing loan advances for Canadian borrowings. Our ABL Revolver matures in August 2025 and is secured by substantially all of our personal property assets, including a first priority lien on credit card receivables and inventory and a second priority lien on personal property assets that constitute first priority collateral for the Term Loan. The amount of credit available is limited to a borrowing base formulated on, among other things, a percentage of the book value of eligible inventory and credit card receivables, as reduced by certain reserves. As of July 31, 2021, the ABL Revolver had a borrowing base of $386.1 million, with $16.8 million outstanding and $5.3 million in letters of credit issued, resulting in $364.0 million available for borrowings.

Borrowings and letters of credit issued under the ABL Revolver accrue interest, at our option, at a rate equal to: (A) a base rate per annum equal to the greatest of (i) the prime rate, (ii) the overnight bank funding rate plus 0.5%, and (iii) the adjusted one-month London Interbank Offered Rate ("LIBOR") (as defined) plus 1.0%; or (B) an adjusted LIBOR per annum (subject to a floor of 0.75%), plus, in each instance, an applicable rate to be determined based on average availability, with an interest rate of 3.0% as of July 31, 2021. Commitment fees are based on the unused portion of the ABL Revolver. Interest expense related to the ABL Revolver includes interest on borrowings and letters of credit, commitment fees and the amortization of debt issuance costs.

Term Loan- On August 7, 2020, we also entered into a $250.0 million Term Loan. The Term Loan requires minimum quarterly principal payments with the remaining outstanding balance due in August 2025. The Term Loan has limited prepayment requirements under certain conditions. The Term Loan is collateralized by a first priority lien on substantially all of our personal and real property (subject to certain exceptions), including investment property and intellectual property, and by a second priority lien on certain other personal property, primarily credit card receivables and inventory, that constitute first priority collateral for the ABL Revolver.

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Borrowings under the Term Loan accrue interest, at our option, at a rate equal to: (A) a base rate per annum equal to the greater of (i) 3.25%, (ii) the prime rate, (iii) the overnight bank funding rate plus 0.5%, and (iv) the adjusted one-month LIBOR plus 1.0%, plus, in each instance, 7.5%; or (B) an adjusted LIBOR per annum (subject to a floor of 1.25%), plus 8.5%, with an interest rate of 9.8% (effective interest rate of 11.8% when including the amortization of debt issuance costs) as of July 31, 2021.

Debt Covenants- The ABL Revolver contains a minimum availability covenant where an event of default shall occur if availability is less than the greater of $30.0 million or 10.0% of the maximum credit amount. The Term Loan includes a springing covenant imposing a minimum earnings before interest, taxes, depreciation, and amortization ("EBITDA") covenant, which arises when liquidity is less than $150.0 million. In addition, the ABL Revolver and the Term Loan each contain customary covenants restricting our activities, including limitations on the ability to sell assets, engage in acquisitions, enter into transactions involving related parties, incur additional debt, grant liens on assets, pay dividends or repurchase stock, and make certain other changes. There are specific exceptions to these covenants including, in some cases, upon satisfying specified payment conditions. We are restricted from paying dividends or repurchasing stock until the third quarter of fiscal 2021 at the earliest, after which certain limitations apply. Both the ABL Revolver and the Term Loan contain customary events of default with cross-default provisions. Upon an event of default that is not cured or waived within the cure periods, in addition to other remedies that may be available to the lenders, the obligations may be accelerated, outstanding letters of credit may be required to be cash collateralized and remedies may be exercised against the collateral. As of July 31, 2021, we were in compliance with all financial covenants.

Legal Proceedings- We are involved in various legal proceedings that are incidental to the conduct of our business. Although it is not possible to predict with certainty the eventual outcome of any litigation, we believe the amount of any potential liability with respect to current legal proceedings will not be material to the results of operations or financial condition. As additional information becomes available, we will assess any potential liability related to pending litigation and revise the estimates as needed.

Insurance Recoveries- During fiscal 2020, a third-party vendor experienced a shutdown of services to us that impacted our ability to fulfill orders from customers for a limited period of time. This incident was covered under an insurance policy that provides for reimbursement of lost profits and recognized losses as a result of the outage. During the fourth quarter of fiscal 2020, we recognized an insurance recovery receivable of $3.0 million, recorded as an offset to cost of sales, for recognized losses that we believe are probable of being reimbursed through the insurance policy. Reimbursement for lost profits and any additional recoveries in excess of recognized losses are treated as gain contingencies and will be recognized when realized or realizable. We continue to work with the insurance carrier to reach an agreement on the total amount to be recovered.

Guarantee- We provide guarantees for lease obligations that are scheduled to expire in fiscal 2023 for locations that have been leased to third parties. If a third party does not pay the rent or vacates the premise, we may be required to make full rent payments to the landlord. As of July 31, 2021, the total future minimum lease payment requirements for these guarantees were approximately $13.3 million.

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The following provides certain key financial data by segment reconciled to the condensed consolidated financial statements:

(in thousands)			U.S. Retail						Canada Retail						Brand Portfolio						Other						Corporate/Eliminations						Total
Three months ended July 31, 2021
Net sales:
External customer sales			$	723,093					$	57,585					$	36,657					$	—					$	—					$	817,335
Intersegment sales			—						—						13,872						—						(13,872)						—
Total net sales			$	723,093					$	57,585					$	50,529					$	—					$	(13,872)					$	817,335
Gross profit			$	256,893					$	18,768					$	8,533					$	—					$	487					$	284,681
Income from equity investment			$	—					$	—					$	2,290					$	—					$	—					$	2,290
Three months ended August 1, 2020
Net sales:
External customer sales			$	393,977					$	49,582					$	23,889					$	22,266					$	—					$	489,714
Intersegment sales			—						—						6,569						—						(6,569)						—
Total net sales			$	393,977					$	49,582					$	30,458					$	22,266					$	(6,569)					$	489,714
Gross profit (loss)			$	40,097					$	5,650					$	(11,440)					$	118					$	2,617					$	37,042
Income from equity investment			$	—					$	—					$	2,153					$	—					$	—					$	2,153
Six months ended July 31, 2021
Net sales:
External customer sales			$	1,343,751					$	98,189					$	78,550					$	—					$	—					$	1,520,490
Intersegment sales			—						—						29,406						—						(29,406)						—
Total net sales			$	1,343,751					$	98,189					$	107,956					$	—					$	(29,406)					$	1,520,490
Gross profit			$	450,006					$	29,603					$	20,459					$	—					$	724					$	500,792
Income from equity investment			$	—					$	—					$	3,998					$	—					$	—					$	3,998
Six months ended August 1, 2020
Net sales:
External customer sales			$	771,050					$	78,911					$	86,647					$	35,889					$	—					$	972,497
Intersegment sales			—						—						25,924						—						(25,924)						—
Total net sales			$	771,050					$	78,911					$	112,571					$	35,889					$	(25,924)					$	972,497
Gross profit (loss)			$	7,127					$	3,339					$	2,464					$	(5,310)					$	2,962					$	10,582
Income from equity investment			$	—					$	—					$	4,423					$	—					$	—					$	4,423

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