Significant Accounting Policies (Policies)

3 Months Ended

May 02, 2020

Accounting Policies [Abstract]

Basis of Accounting, Policy

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 February 1, 2020 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 our Annual Report on Form 10-K for the fiscal year ended February 1, 2020, as amended, (the "2019 Form 10-K") filed with the SEC on May 1, 2020 and amended on May 7, 2020.

Fiscal Period, Policy

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.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

As a result of the material reduction in net sales and cash flows due to the temporary closure of all of our stores, during the three months ended May 2, 2020, we updated our impairment analysis 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 (categorized as Level 3 under the fair value hierarchy). During the three months ended May 2, 2020, we recorded impairment charges of $84.9 million for under-performing stores ($65.2 million and $19.7 million for the U.S. Retail and Canada Retail segments, respectively).

Goodwill and Intangible Assets, Policy [Policy Text Block]

Also during the three months ended May 2, 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).

We evaluate goodwill and other indefinite-lived intangible assets for impairment annually during the fourth quarter, or more frequently if an event occurs or circumstances change that would indicate that impairment may exist. As a result of the material reduction in net sales and cash flows due to the temporary closure of all of our stores and the decrease in the Company's market capitalization due to the impact of the COVID-19 outbreak on macroeconomic conditions, we updated our impairment analysis for goodwill and other indefinite-lived intangible assets during the three months ended May 2, 2020. We calculated the fair value of the reporting units with goodwill and for The Shoe Company tradename primarily based on a discounted cash flow analysis (categorized as Level 3 under the fair value hierarchy). Our analysis concluded that the fair values of the First Cost reporting unit within the Brand Portfolio segment and The Shoe Company tradename within the Canada Retail segment did not exceed their respective carrying values. Accordingly, during the three months ended May 2, 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, and $1.1 million for The Shoe Company tradename included in the Canada Retail segment. For goodwill within the U.S. Retail segment, which is also the reporting unit, the fair value was in excess of the carrying value.

Income Tax, Policy

As of May 2, 2020, we did not significantly adjust the valuation allowance on deferred tax assets based on available evidence. However, we will continue to monitor the realizability of our deferred tax assets, particularly in certain jurisdictions where the outbreak has created significant net operating losses. Our ability to recover these deferred tax assets depends on several factors, including the amount of net operating losses we can carry back and our ability to project future taxable income. Net deferred tax assets as of May 2, 2020 were $139.3 million, which are all related to jurisdictions where we expect to incur significant net operating losses in the near term, although the risks of failing to realize these benefits vary across the jurisdictions. Our effective tax rate changed from 25.4% for the three months ended May 4, 2019 to 33.8% for the three months ended May 2, 2020. The increase

Business Acquisition, Integration, Restructuring and Other Related Costs [Text Block]

Integration and Restructuring Costs- During the three months ended May 2, 2020 and May 4, 2019, we incurred integration and restructuring costs, which consisted primarily of severance of $1.7 million and $1.3 million, respectively, and professional fees and other integration costs of $0.1 million and $1.2 million, respectively. These costs are included in operating expenses in the condensed consolidated statements of operations. As of May 2, 2020 and May 4, 2019, we had accrued severance of $2.6 million and $3.4 million, respectively, included in accrued expenses on the condensed consolidated balance sheets.

Consolidation, Policy

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 ("USD"), unless otherwise noted.

Use of Estimates, Policy

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 date of the financial statements and reported amounts of revenue and expenses during the reporting period. Certain estimates and assumptions use forecasted financial information using information reasonably available to us along with the estimated, but uncertain, future impacts of the COVID-19 outbreak. 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, legal reserves, foreign tax contingent liabilities, income taxes, and self-insurance reserves. Although these estimates and assumptions are based on management's knowledge of current events and actions it 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 and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy

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 was restricted as to withdrawal or usage and consisted of a mandatory cash deposit for certain outstanding letters of credit.

Fair Value Measurement, Policy

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.

We measure available-for-sale investments at fair value on a recurring basis. These investments were measured using a market-based approach using inputs such as prices of similar assets in active markets (categorized as Level 2). The carrying value of

cash and cash equivalents, accounts receivables and accounts payables approximated their fair values due to their short-term nature. The carrying value of borrowing under the Credit Facility approximates its fair value based on its term and variable interest rate.

Reclassification, Policy

Prior Period Reclassifications- Certain prior period reclassifications were made to conform to the current period presentation, consistent with the changes made during the fourth quarter of fiscal 2019. Commission income, previously presented in commission, franchise and other revenue, was reclassified to net sales. Other revenue, which primarily included operating sublease income, also previously presented in commission, franchise and other revenue, was reclassified to operating expenses. In addition, we reclassified a previously presented basis difference related to acquisition of commonly controlled entity to common shares paid in-capital within shareholders' equity for all periods presented. The basis difference related to the acquisition of a commonly controlled entity related to a legal entity acquisition in fiscal 2012 from certain Schottenstein Affiliates (as defined below), which legal entity owned property that was previously leased by us. As this was a transaction between entities under common control, the difference between the historical cost carrying amounts and the consideration transferred is reflected as an equity transaction within common shares paid in-capital.

New Accounting Pronouncements, Policy

Adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments- During the first quarter of fiscal 2020, we adopted Accounting Standards Update ("ASU") 2016-13, which replaces the previous incurred loss method used for determining credit losses on financial assets, including trade receivables, with an expected credit loss method. The adoption of ASU 2016-13 did not have a material impact on our condensed consolidated financial statements.

Revenue from Contract with Customer [Policy Text Block]

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.

Earnings Per Share, Policy

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.

Stockholders' Equity, Policy

Shares- Our Class A common shares are listed for trading under the ticker symbol "DBI" on the New York Stock Exchange. There is currently no public market for the Company's Class B common shares, but the Class B common shares can be exchanged for the Company's Class A common shares at the election of the holder on a share for share basis. Holders of Class A common shares are entitled to one vote per share and holders of Class B common shares are entitled to eight votes per share on matters submitted to shareholders for approval.

Repurchase and Resale Agreements Policy

Share Repurchases- During the three months ended May 2, 2020, we did not repurchase any Class A common shares. During the three months ended May 4, 2019, we repurchased 3.4 million Class A common shares at a cost of $75.0 million. Effective April 30, 2020, our Credit Facility no longer permits share repurchases.

Segment Reporting

Our three reportable segments, which are also operating segments, are the U.S. Retail segment, the Canada Retail segment, and the Brand Portfolio segment. All other operating segments are below the quantitative and qualitative thresholds for reportable segments and are aggregated into Other for segment reporting purposes.