Good morning, ladies and gentlemen and welcome to Designer Brands’ First Quarter 2019 Conference Call. Thank you for standing by. At this time, all participants are in listen-only mode. As a reminder, today’s conference call is being recorded.

I would now like to turn the conference over to Allison… [Technical Difficulty] Earlier today, the company issued a press release comparing results of operations for the 3 months ended May 4, 2019 and the 3 months ended May 5, 2018.

Please note that remarks made about the future expectations, plans and prospects of the company constitute forward-looking statements. Results may differ materially due to various factors listed in today’s press release and the company’s public filings with the SEC. And 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. Now, let me turn the call over to Roger..

Good morning. I am excited to share with you the progress that’s been made towards the vision we outlined during our Investor Day.

I am excited because we have seen continued growth in all of our retail segments, while also making great progress in leveraging the Camuto Group infrastructure for the benefit of Designer Brands and readying the organization to begin moving the production of our private brands to our Camuto organization.

I would like to share a few highlights from Q1. First, we delivered a strong comp at the DSW brand on top of a positive comp last year, while delivering 70 basis points of gross profit rate improvement driven by digital demand growth key items in our seasonal categories.

Second, our Canadian segment turned to profit during Q1 for the first time in 5 years. Third, our integration work at Camuto is in high gear, already producing many of our GWPs taking on replenishment orders for fall exclusive brand business and strong double-digit growth in our own digital direct-to-consumer businesses.

Fourth, we have paid our quarterly dividend and repurchased approximately 4.5% of our outstanding shares for $75 million. And finally five, we are raising our annual guidance to $1.87 to $1.97 a share. Both our retail segments delivered strong revenue increases and healthy growth in gross profit rate over last year.

Our distortion across North America to seasonal and kids products and a focus on key items fueled this profitability growth.

I am excited to see the Canadian business deliver such an impressive performance through the talented leadership now in place and by leveraging the business discipline and established infrastructure that Designer Brands has brought to that business.

The practices we have put in place at DSW over the past 3 years are now in place in our Canadian operation and I am excited for both our teams to demonstrate how we can acquire our business and implement our tried-and-true retail processes to drive improvement in another retail business.

At Camuto representing our brand portfolio segment, we have made a great deal of progress installing core business discipline, restoring open to buy with our wholesale customers for the fall.

And most importantly finding some quick wins working with our retail segment while diligently keeping the pressure on to ensure that our vast majority of exclusive brand products to be sold in 2020 will be produced by our Camuto Group.

We have started the formal strategy process at Camuto which we diligently follow at our other segments and have put together some basic tenets of performance measurement, transparency and accountability which are new muscles to the business.

Overall, I am very pleased with the progress we are seeing here, integrating this world class design and sourcing expertise into the Designer Brands infrastructure and some of the immediate wins we have been able to achieve as a result of our unique business model which I will share with you a little later in the call.

For now, let me turn the call over to Jared to go over the financial results in more detail..

Thank you, Roger, and good morning. I have been on the road for the better portion of the quarter meeting with many of you and I have come away with a sense that most of you understand the power of what we have created at Designer Brands. And you understand the relative simplicity of what drives our significant growth over the next 3 years.

But understandably, you are a little anxious to buy in too early until you see the fruits start to appear. I look forward to sharing those fruits with you as they come to fruition including on today’s call so that you can feel comfortable getting as excited about this model as Roger and I both are.

To that end let’s dig into the results for the first quarter. Net income for the first quarter of 2019 was $31.2 million or $0.40 per diluted share which included net after tax charges of $2.4 million or $0.03 per diluted share primarily related to integration and restructuring expenses associated with the acquired businesses.

Excluding these charges, adjusted EPS was $0.43 per share. Net income for the first quarter of 2018 was $24.3 million or $0.30 per diluted share which included net after tax charges of $7.2 million or $0.09 per diluted share, primarily related to exit costs associated with Ebuys, acquisition costs and foreign exchange net losses.

The financial results that we will be referencing during the remainder of today’s call exclude certain adjustments recorded under GAAP. For a complete reconciliation of GAAP to adjusted earnings please reference our press release. Operating income for our legacy businesses which is DSW and our Affiliated Business Group grew 12% over last year.

This was driven by healthy comp increases and margin enhancements. As Roger mentioned our Canadian Retail segment generated a profit during the first quarter on meaningful gross margin improvement and positive same-store sales growth which are not yet included in our consolidated comp calculation.

And as expected, Camuto representing our brand portfolio segment turned in a loss for the quarter, but made tremendous progress towards the integration of their world class infrastructure into the Designer Brands ecosystem. At the U.S. Retail segment, comp sales grew 3% on top of last year’s 2% comp growth.

This comp was driven by distortions in seasonal product and key items. Additionally, kids continues to be a stronger performer growing over 50% year-over-year as both the existing kids stores comped very strongly and we continued to reap the benefit of the final phase of our kids rollout which went live in July of last year.

Our largest category women’s comped at 2% while men’s struggled to gain traction and posted a 4% comp decline, accessories were flat, transactions were up over 5% while our ADS was down primarily driven by lower UPT.

Our industry leading digital infrastructure and expertise continued to be a shining star with digital demand growing by 36% for the quarter.

The distortion of marketing dollars being pointed towards digital and customer acquisition continued to deliver as we drove 1.4 million new members into our loyalty programs and produced a healthy sales increase to LY on relatively flat spend dollars for the quarter. Our U.S.

retail gross profit rate for the quarter improved by 70 basis points, IMU leverage and reduced markdowns we are able to more than offset the increase in shipping expense we saw related to our strong digital demand growth, while our growth in exclusive brands provided nearly 50 basis points of this gross profit leverage.

I want to highlight the tremendous progress we are making with our exclusive brands growth. As you may recall, the exciting projected results we discussed at our Investor Day were driven by us materially increasing the sales penetration of goods we produce.

Towards this goal, we have been working to increase DSW and Shoe Company’s penetration of Camuto’s national brands as well as grow our existing exclusive brand business even while it is still being made by a third-party so that we have a strong and growing base from which to grow once we can deliver the higher quality Camuto produced products.

For the first quarter exclusive brand sales accounted for 13% of total U.S. retail sales. This represented a 42% increase over LY. This growth rate is right on track for us to deliver on our Investor Day goals.

And while I am very happy with this growth, I am even more upbeat with the progress we are making with our lift and shipped work underway to move this business to Camuto for spring of next year.

Not only we will have reaped the much richer margins we have laid out, it will help to reduce the amount of work we must currently undertake to address the meaningful quality and delivery issues we have been having with our current provider. The progress we are making here is amazing and it is just the beginning.

Our Canada Retail segment was another standout performer. Please note some of the following data points are for informational purposes since Canada was not consolidated in our Q1 results last year and will not be included in our Designer Brands comp calculation until next quarter.

In addition, the now closed Town Shoes banner is not included in the last year’s comparison numbers. I am happy to report that our Canada Retail segment delivered an in-country comp increase of 0.9% and a total revenue increase of 7.7%. Like our business in the U.S., their digital capabilities outperformed growing at 33%.

This dramatic improvement was driven by an enhancement of the website to support mobile and their conversion to the same ATG platform used by our U.S. segments, which brings substantially more horsepower and functionality to their web experience.

Canada simultaneously improved their gross profit rate by 680 basis points by adopting the inventory management disciplines of our U.S. business, specifically around minimization of aged goods, markdown management and key item distortion.

This quarter’s gross profit rate is more indicative of what I would expect for Q1 on a more sustainable basis for the business. All-in-all, Q1 was a stellar quarter for our Canadian business which generated results not seen in the last 5 years.

Finally, turning to the Camuto Group, I am going to give you information that will help you assess the business in general, but you need to remember that first, we did not own Camuto during the first quarter of last year so any reference to LY is for informational purposes only.

And second, sales to any of our owned retail businesses are included in Camuto’s segment level reporting during the quarter in which product shipped to the other segment. However, upon consolidation, we eliminate the effect of these intercompany sales in earned margin until such time that the product is ultimately sold to the end consumer.

Thus there will be some timing shift between reported Camuto activity and the ultimate consolidation recognition of sales and margin at Designer Brands, which you can see in our accompanying financials. The brand portfolio segment generated net sales of $100.9 million, which was slightly below last year’s volume.

As we have previously discussed, the front half of 2019 is expected to be a challenge versus LY due to the long lead times in footwear manufacturing and the time it takes to regain open-to-buy dollars from customers who experienced significant product delays or cancellations from Camuto prior to our ownership of the business.

We expect most of that noise to dissipate as we progress through the year and see a more normalized business in the back half. I am excited to report however that reads on sell-throughs of our major national brands and most of our retail partners are encouraging.

Jessica Simpson branded footwear is resonating much stronger than in recent seasons and Lucky and Vince Camuto sell-throughs are stronger as well.

While we still must regain the open-to-buy dollars at our largest customers that was locked after the execution missteps of 2017 and 2018, we are starting to see validation of this sentiment we have been receiving from Camuto’s largest and most important customers that they have been anxious to see Camuto return to full financial help, so they can once again feel confident in Camuto’s ability to deliver on-time quality products.

In addition to the work we have been doing to regain open-to-buy with Camuto’s important customers, we have also made great progress integrating Designer Brands retail outlets with Camuto’s national brands.

During the quarter, Camuto designed and produced goods that were sold wholesale to DSW and our other retail businesses totaling more than $10 million. The majority of these goods included regular-priced inline goods as well as closeouts that traditionally would have gone to discounters or off-price retailers at lower sales prices.

More importantly as we have started placing orders for fall 2019 products for our retail segment, our approach has been to first find ways to work more strongly with Camuto brands and our exclusive brands, then look to outside brands to round out the assortment.

Camuto’s first cost business got off to a healthy start and generated $3.7 of revenue in the quarter designing and producing product for many Camuto customers, including DSW under the FX Lane brand which Camuto has been sourcing for the last year.

Our teams are actively working to secure even more first cost business as independent footwear brands continue to consolidate and more retailers follow DSW’s lead to increase private label penetration. We are excited about our prospects in this space.

At DSW, we have built an exclusive brands team consisting of some of the most talented merchants in this segment to own and guide our exclusive brand business. This team works hand-in-glove with the dedicated DSW team at Camuto managing every aspect of the exclusive brand portfolio.

These two teams have made tremendous progress towards the goal of moving nearly all of our current exclusive brand production from our current provider to Camuto. As we discussed previously, we planned for this shift to occur during 2019 such that this product will be sourced by Camuto by the start of 2020.

We are squarely on track to that goal, with customer profile work now completed, design and sketches now approved, technical design being finalized and factory capacity secured.

Although the bulk of our products synergies between Camuto and DSW begin to materialize in 2020, we did find multiple opportunities to work together yet in 2019 for the benefit of Designer Brands. The previously mentioned sales of wholesale products to DSW provides substantially enhanced margin rate immediately.

Additionally, on the first cost services, Camuto has been able to take certain replenishment orders for fall 2019 delivery of some existing private label product currently produced by a third-party.

And finally, DSW has also shifted the design and production of many of our 2019 Gift with Purchase Giveaway products to Camuto thus eliminating the higher markup which additionally paid to a third-party for these goods.

As we integrate Camuto further into the Designer Brands infrastructure, we will find many more ways to work together to improve profitability and provide competitive advantages to Designer Brands.

Needless to say, I am pleased with the progress we are making integrating the Camuto infrastructure and expertise into the Designer Brands’ ecosystem and I feel confident in our ability to deliver the products needed to generate the results outlined on our Investor Day.

Finally, Camuto saw a 46% comp at vincecamuto.com and a 32% comp at solesociety.com. While this is exciting to see such strong growth with the overall DTC business currently stalled at $50 million in annual revenue, we know there is substantial opportunity in this DTC business.

Our experienced digital teams have just begun working with the Camuto teams to map out a game plan to help the DTC business at Camuto leverage the experience, expertise and infrastructure that DSW has developed in this space. There is no doubt this will be a big driver of growth for Camuto as it has been for Camuto’s peers.

Gross margin at Camuto came in at 21.8%. This gross margin includes royalties and pooled marketing paid to the ABG Camuto joint venture, which are new to the Camuto operating model since the transaction.

We expect margins will improve starting in the fall and beyond as we increase factory volume and we burn off the remaining hangover of delayed shipping discounting and credit risk premiums that were added to Camuto’s cost of goods sold heading into the transaction.

Turning to Designer Brands’ total operating expenses, the legacy businesses grew SG&A by 4.5% de-leveraging by 30 basis points.

Most of this de-leverage was related to increased customer servicing costs resulting from our strong digital demand growth as well as depreciation related to IT investment in addition to some small changes in our P&L due to the new lease accounting standards. The acquired businesses added nearly $15 million of expense into the quarter.

You should remember that both Canada and Camuto operate at higher expense rates and accordingly are dilutive to our SG&A rate as a total enterprise. All that being said the leadership at Camuto has made great progress in identifying savings opportunities and several million dollars of expense have already been pulled out of that business.

We look forward to recognizing several million dollars more of annualized expense savings as we continue our integration work from distribution and supply chain, back office administration, larger scale with service providers and more. We look forward to attacking this.

Turning to the balance sheet, we ended the quarter with $121.9 million in cash and investments and $235 million drawn on our revolver compared to $268.9 million in cash and investments and no borrowings on the revolver last year.

The primary driver of the change with the acquisition activity last year and the $122.5 million of share repurchases, including $75 million during the first quarter of 2019 acquiring 3.4 million shares. Inventory per square foot in the U.S. ended down 3.6%.

New to the balance sheet this quarter was inventory at our Canada retail segment, which totaled $47 million and was down 8% on a per square foot basis from last year driven by inventory management disciplines installed upon the acquisition. Also new this quarter was inventory at Camuto, which totaled $74 million, which was down 7.5% from last year.

During the quarter, we opened 4 DSW stores in the U.S. ending the quarter with 520 stores. We expect to open 5 to 7 additional stores and close up to 3 during the balance of the year. In Canada, we opened 2 Shoe Company stores and closed 1 store ending the quarter with 113 Shoe Company stores and 27 DSW stores in Canada.

For the balance of the year, we expect to open an additional 6 to 8 Shoe Company stores and closed 1 additional Shoe Company store. Our tax rate was 25.4% versus 25.3% last year and total weighted average diluted shares outstanding during the quarter were $78 million compared to $81 million last year.

I would now like to provide some color on our full year guidance and what we are expecting for the balance of the year. We are raising our guidance range for the year to $1.87 to $1.97.

This reflects the highly accretive nature of the share repurchase activity executed during the quarter, while we remain confident in our ability to meet or exceed the implied net income dollars to which we have previously guided.

We now expect weighted average shares outstanding for the year to be approximately $77 million with moderately higher interest expense.

As for the balance of the year, I am going to provide a little more color than we typically provide given our Canadian and Camuto businesses are new to the consolidated P&L and their calendarizations are quite different from the legacy DSW.

Please note we do not intend to provide quarterly guidance nor we necessarily provide this level of quarterly color in the future, but it seems appropriate for now. Obviously Q1 came in relatively flat to LY from an EPS perspective.

Our legacy businesses had an increase in operating income of $6 million which was basically offset with the inclusion of Camuto into the quarter which generated loss as we discussed. As I mentioned previously, we don’t expect the same year-over-year operating performance for Designer Brands in the second quarter.

We are planning a decent decline to LY in Q2 driven primarily by the one-time tailwind we have received last year related to the re-launch of our VIP program at DSW and the inclusion of Camuto which is anticipated to generate slightly lower sales and margin dollars versus Q1 with relatively flat expenses.

Last year we have re-launched DSW’s VIP program in May and not only did we have strong top line response, we also recognized a little over $8 million of margin related to the adjustment of our rewards reserve as we updated our assumptions under the new VIP program.

But we anticipate some natural margin accretion at DSW in Q2 as the work we have been doing around key items and reg price selling continues. We obviously don’t anticipate that we would generate near the $8 million benefit we saw last year.

With Canada expected to be relatively flat to LY, these puts and takes shake out to an operating income for Designer Brands approximately $15 million to $20 million below LY for the second quarter. Things look very different for the fall however.

We obviously are planning our year-over-year in operating income to more than exceed the decline in year-over-year operating income we absorb in the spring with Q3 being by far the strongest quarter for all of our segments and all of our businesses being comped for Q4.

As we look at the calendarization of our new businesses I mentioned earlier that Canada typically has net losses in the first quarter of the year. Given the strong performance they put forth this year, they were able to buck that trend and post the slight gain.

However, given the seasonality of their business Q1 is their weakest sales quarter followed by Q4 than Q2. Q3 is by far their strongest sales quarter representing approximately 30% of their full year. Given their extremely strong ownership of the kids market in Canada, back-to-school played a big part of their full year business.

Additionally, full price boots season starts in earnest during Q3. Given a relatively fixed expense structure their operating income contribution is dramatically impacted by their sales performance with the majority of their full year Op income being generated in Q3, relatively same amount of Op income in Q2 and historically a loss in Q1 and Q4.

Their annualized Op income rate is running about half that of Designer Brands in total, but we feel there is opportunity to improve that with the leveraging Designer Brands vendor relationships and scale and leveraging Designer Brands shared services. We believe there is decent runway ahead for operating income contribution improvements from Canada.

For Camuto, not only there is their legacy business calendarized differently than DSW, but their model is evolving as they become more impacted by business done with and for DSW. Camuto’s strongest sales quarter is Q3 representing approximately 30% of their total sales. The other three quarters are relatively similar to each other.

The margin rate swings throughout the year with Q2 traditionally being the lowest of the year due to closeouts from industries and department store make holds. We see opportunities to continue to improve the gross margin rates earned on the wholesale business with the elimination of late shipments and excess of air freight expenses.

Additionally, as business grows with DSW that business will not be burdened with vendor allowances and guaranteed gross margin paybacks.

To that end, we actually experienced a great leveraging of the Designer Brands infrastructure this quarter from one of Camuto’s department store customers was seeing a slower sell through than desired on a particular shoe.

In the past, that customer would have turned to Camuto for a guaranteed gross margin allowance and would have liquidated the inventory on their own through various channels.

Instead Camuto now was able to retake position of the inventory diverted as the close of the DSW and the shoe company than different products of the department store avoid vendor allowance payments and allow Designer Brands to liquidate brand name closeouts at a far greater net recovery rate.

As our integration takes even further hold on certain synergies like this will become much more prevalent and give Camuto a big competitive advantage over other wholesalers. On the expense side, Camuto’s expense structure is highly fixed thus ultimate operating income contribution is highly impacted by the sales volatility within the year.

Finally, to give a little color as to the business mix of the Camuto organization, although the vast bulk of their revenue is derived from their wholesale business, it actually contributes very little to their operating income. Tight margins and high fixed cost make this an important, but challenging business for Camuto.

Should there be substantial volatility in this business, we would take appropriate expense actions to bring that business back in line, but the overall impact to op income long-term would be relatively marginalized. The first cost business structure is much more profitable to the organization incomes without the inventory risk.

As mentioned previously, we believe there are increasing opportunities to grow this business given changes happening in the marketplace along with the superior product and processes of Camuto. It was what Camuto was founded upon and something that we feel remains a core competency for the business.

Finally, we see the direct-to-consumer business at Camuto growing substantially. This will highly leverage the infrastructure and expertise that we have built at DSW and will allow Camuto to leapfrog to the front of their peers as they are currently sorely under-penetrated here.

As this grows, it will impact the sales and profitability flow of the business. The last point I would like to bring to your attention regarding Camuto is the timing impact of intercompany sales.

As our Camuto produced product penetration to our retail assortment increases, the timing impact of intercompany eliminations will become more meaningful in any given quarter.

I just want to remind you that any such elimination is purely timing, which ultimately flows through the consolidated P&L when the product is ultimately sold to the end consumer. Given that this aligns with our strategy to sell more products that we produced, I am very comfortable with this timing impact occurring.

I just call it out to you as something that is different from our past and something that you should appreciate as you look at our future expectations. With that, I would like to turn the call back over to Roger..

Thanks, Jared. Hopefully, you are as excited about the performance of our individual segments as I am. Each fighting hard everyday to deliver differentiated products and experiences for their customer that ultimately disrupt the footwear industry.

Before I leave you with some final thoughts, let me first spend just a few minutes walking you through our thinking around tariffs. While we join our fellow retailers and footwear manufacturers and believing that using such dramatic tariffs as negotiating club is shortsighted.

We nonetheless appreciate the reality that such actions could be taken at will by the administration and have carefully studied the impact it would have on our business and what we can do to mitigate this impact. Non-athletic footwears don’t heavily rely on Chinese production and supply chain.

And while we and our peers have been working to move production out of China for sometime now, the fact remains footwear is a very capital intensive industry with years of planning required to make sourcing decision. Companies cannot simply move factories to adjust to these changes instantaneously.

When looking at the total impact in risk assessing our mitigation alternatives such as cost sharing with vendors in factories, accelerating our private brand rolled out at DSW, considering alternatives componentry, new and innovative business growth across all of our divisions, meaningful SG&A reductions in synergies and potentially some level of incorporating a portion of the tariff within the retail cost of our product.

We believe we have identified actions that can mitigate the vast majority of the direct impact of the 25% tariff. That being said, we can’t predict the impact this action could have on consumer spending and will provide a projected annualized EPS impact if the tariffs are instituted and we have time to see the consumers and competitors respond.

We will also be focused on how best to exploit our financial strength, scale and infrastructure to aggressively grab market share from other retailers and footwear brands who are not in the same financial position.

While this new share will likely be at reduced margin rates, the new and salvaged margin dollars will be accretive to Designer Brands in total and will give us even more scale with our vendors in factory.

We sincerely hope that rational thinking will prevail and footwear will continue to be excluded from any new tariff, but we are ready to respond if they occur and in fact our executing portions of our mitigation plan regardless of actual implementation.

As I look across the Designer Brands Enterprise, I am even more excited about the magic that happens when all our teams work together as a single unique industry dominating family.

Leveraging the strengths of each and providing support for the other to take Designer Brands to entirely new level, I would like to share some examples, where this is already happening.

First in Canada, until we fully acquire the Canadian business at the beginning of Q2 last year, they have not made the investments needed to be truly competitive in the digital commerce space with digital being one of DSW’s core strengths here in the U.S.

and with the infrastructure already in place during the quarter, we were able to provide our infrastructure in over a decade of experience to our banners in Canada and moved their digital operations on to the same platform as the U.S.

This has immediately yielded results, that enables them to enhance their capabilities with features such as earning and redeeming loyalty points online, buying and redeeming gift cards online as well as the much improved overall digital customer experience.

This saves us millions of dollars and years of learning and benefits Designer Brands immediately. Also in Canada, we are launching the new loyalty program for both DSW and the Shoe Company customers later this year.

This work has been highly informed by the investments and results in this space learned when DSW re-launched their award winning loyalty program last year in the U.S. Simultaneously, we have hired top marketing talent in Canada to work closely with our experts in the U.S.

to elevate their marketing and loyalty programs and reach productivity levels similar to the U.S. And we have seen similar opportunities at Camuto. Immediately upon acquisition, we dropped in our distribution and transportation experts from DSW to assess opportunities at the brand new distribution and fulfilment center.

As mentioned at the time of acquisition, while this facility was new and fitted with state-of-the-art equipment, it has not been engineered properly or brought online smoothly and was a significant burden to the organization. As a result of these challenges, the Camuto organization failed to deliver product on a timely basis to their retail partners.

After working closely with DSW’s engineers and leaders, I am happy to report that the Camuto warehouse is operating at significantly more efficient level and delivering on the expectations of our retail partners.

Additionally, we are working with our shared IT organization diversely linked together all of our warehouses and inventory across all Designer Brands.

We are turning the Columbus DC into a foreign trade zone and will eventually be able to more efficiently supply stores and customers across the enterprise in multiple banners from the most efficient stores possible.

Also we have setup a read-and-react infrastructure at Camuto, so they can utilize our retail segments to get early reads on product, leverage our quick turning production capabilities in Brazil to hone in on what is responding well, then move to mass production for not only DSW, but for all of our retail partners such as Nordstrom, Dillard’s and Macy’s.

Again, this is a differentiation in the footwear segment. No other manufacturer has the retail footprint we have that can assist our wholesale partners. A few footwear brands are recognized for their speed to market. Over time, we will be the leader in this space.

And this improved speed is helping Designer Brands be able to leverage Camuto’s production expertise even sooner than originally anticipated.

You heard Jared discuss the movement of several of our GWP productions to Camuto and the ability to fulfil some of the exclusive brand replenishment orders from later in the year, essentially jumpstarting the shift of the business from our existing third-party provider to Camuto.

Likewise, we have established a cross-segment form to help our retail segments rise in prominence within Camuto’s customer portfolio and likewise move Camuto Group to the top of the vendor relationships for our retail segment. This work is resulting in substantial new orders, an idea about future orders that typically may not have been considered.

Finally, we are taking our core disciplines around talent, leadership and strategy and bringing those to life at Camuto. These are the same disciplines we have crafted over years as the legacy DSW business and those we have been working on over the last 9 months in Canada.

There is a core group of talented, loyal and passionate leaders at Camuto who are excited about the opportunities in front of Designer Brand. We have begun providing the type of support structures we know work, empowering them to reach beyond the comfortable and providing an infrastructure for accountability and results.

Additionally, we have brought the Camuto leadership together for the first time in their history to all participate in formal strategy setting. This includes setting the mission for Camuto, the strategies that will support that mission and the tactics to achieve the strategy.

This leadership team has been so open to developing this new muscle and is exciting to see the passion flourish. To see the pieces starting to fall into place as we had planned for Designer Brands is very integrated. Goals we set out at Investor Day become more wheeled as each day passes.

I am honored to work with such a dynamic team across the globe and look forward to sharing more with you in the future as we continue this exciting growth. Thank you. With that, let me turn the call over to the operator for Q&A..

Yes. Thank you. We will now being the question-and-answer session. [Operator Instructions] And today’s first question comes from Camilo Lyon with Canaccord Genuity..

Hi, good morning. Thank you for all the detail, much appreciated..

You’re welcome..

There is a lot of [impact there] [ph], maybe if you can just start high level from just the overall health of the U.S.

consumer that you are seeing, you mentioned in which department stores we are having a little bit of more challenging period, get some of that inventory back, made it more profitable transaction through the DSW stores, I am wondering if you can just give an overall assessment of what you are seeing in the U.S.

from the consumer and how that should perform, how we should think about your DSW comps in Q2 and Q3 in light of difficult comparison, particularly what is seeming to be a incrementally more promotional environment?.

Yes. So Camilo I will take that question. I think at Investor Day we talked about three things we were doing to really differentiate the DSW segment within retail and I am really proud of the work that we have done. We talked about differentiated products and when you look at Q1, we have dominated the seasonal categories both boots and sandals.

So the weather noise that we are always talking here about, we have some flexibility in our assortments that perhaps some others don’t. So we did double digit comps in both of our seasonal categories. And we are going to continue that throughout the balance of the year. We talked about expanding kids.

We did over 50% increase in kids volume year-over-year which again continued growth we see in that. And we also talked about growing our Camuto produced brands. Then ultimately we did a 42% comp in private brand goods that added 50 basis points of margin rate for the quarter.

So as I look at the retail segment, if we are continuing to focus our teams efforts on those kind of dominant positions around product, we got – we have momentum, we had momentum coming from 2018 and its continued in Q1 and we want that to continue throughout the year. That being said Q2 will be a much larger challenge than any other quarters.

We had plus 10 comp last year, but we are focused on the year and what this thing looks like 2 years and 3 years from now and we feel really good. So in general that’s why I would tell you as it relates to products and how we are performing as a business..

Great. And then my follow-up is on the tariffs, thanks for addressing that already. I just had one or two follow-ups to that topic, if you could just help us understand what’s baked into your guidance right now I guess I am assuming that 10% is baked into your guidance on behalf of that [indiscernible].

And then the second portion of that question is as we think about the scenario if the tariffs expand to include footwear, what pricing actions are embedded in your assessment of being able to almost fully mitigate that offset?.

I will let Jared take the first part and then Camilo I will take the second part..

Certainly and so yes, you are correct. As we look at our handbag business one at the DSW side, we have been working with our vendors to find the way to mitigate as much of that as possible. On the Camuto side, we certainly have been taking the actions that we can to mitigate as much of that.

I will tell you as far as moving production outside of China our handbag business was well ahead of the curve vis-à-vis our footwear business. And so we have incorporated all of that with we are looking at for the year..

And as it relates to I think go forward Camilo how we are looking at it, I am going to give you these are the eight things and hopefully if I answer this question here it would be the hopefully the one time on this call we have to talk about this stuff.

But I get the uncertainty that it creates for all of you, but there are 8 actions that sort of outlined in the previous comments, but I want to go through them again quickly. Number one and our first priority is moving product to other countries.

And I think when everyone was giving us doubting our ability to acquire something and why would we acquire Camuto, this gives us flexibility we never had before, because now our first focus is moving product to other countries and we are doing that and it’s a great news for us is at Camuto we produce in over 13 countries and we have existing relationships that creates a flexibility now for both DSW and our other businesses we didn’t have before, so that’s priority number one.

Number two, cost sharing with vendors in factory. Remember at our earnings day, I talked about the fact that DSW is being paying too much for goods from for the last 13 years that I have worked here and that was all validated with the information we got from our Nine West acquisition look as well as acquiring Camuto.

So we [hadn’t] [ph] embedded any of that into our future guidance and we are going to use that as a way to hopefully deal with some of the cost increases, because we shouldn’t absorb them, because we already paying too much for goods. So that’s number two. Number three, we will accelerate our private brand rollout.

So if you are a brand, it’s not a part of our or I should say if you are label that’s not relevant to the consumer day in and day out demanded by that consumer you are probably going to have less likelihood of being on our selling floor day-in and day-out because we are going to accelerate our private brand rollout even faster to mitigate some of that risk.

Number four we are going to pass on some portion to consumers and we have been testing items over the last roughly about 6 months to understand price elasticity and where could we move prices and we think we have got a pretty good game plan there.

And I think you are going to see key items in major retail that are going to go up and move right with those folks. I think that’s option number four.

Number five, Camuto had stopped taking positions on raw materials, because they were in a tough financial condition and we are lucky enough to have some cash and we are looking at how we can take some positions to improve our costing on raw materials.

Number six looking at alternative componentry and I’ll give you a good example of this, the Camuto brand everything we do in the heel was a solid heel. So there is some options within that, that you could pull costs out. So we are looking at those kind of options.

Number seven, and I am excited about this one, it’s the journey we have been on now for about a year. We have to find alternative means for growth. And one of those growth vehicles is services and at least for now those aren’t going to be tariffed as far as I know.

So with the nails launch we have been doing how can we accelerate some of that work, because those things drive consumers in and they ultimately drive sales and margin. And then finally the last one the thing that we’d prefer to make it the last action we would take is we will have to look for SG&A reduction.

So as an organization, as a leadership team we have gone through all 8 of those steps and identified the dollars we think associated with each and actions we are going to take. So that’s our approach to tariffs and hopefully that’s enough color to give you sense of what we have done today..

Much appreciated. Thank you..

You are welcome..

Thank you. And the next question comes from Paul Trussell with Deutsche Bank..

Hi, good morning. This is Gabby Carbone on for Paul. Thanks for all the detail this morning. I was hoping you discuss your merchandizing market outlook for the DSW banner following your strong performance his year.

We are hearing from other retailers that the promotional environment is elevated, but you mentioned you are able to reduce markdown this past quarter, just wondering how you feel about the opportunity moving forward? Thank you..

No, good question and again it comes back to what I talked about earlier about differentiated products.

So getting after seasonal, growing kids, those exclusive brands and Camuto produced brands bringing those to life, but I also really have to recognize the efforts of our planning and allocation team and our merchants who are getting after the cost of goods with our vendors, but also how we are optimizing inventory and we talked a lot at Investor Day about operational excellence.

And one of the things that Bill Jordan has talked about was optimizing inventory management and we exited the quarter with a 3% decline in inventory while driving a 3% comp. And our in-stocks and our key items are significantly better than they were last year.

And as we go through Q2 they are going to be – we are going to be better positioned in sandals then we have ever been.

So our belief is by having this incredible loyalty program that was recognized as the number one retail loyalty program in America that added 1.4 million new members in Q1 that if we leverage that asset and optimize our inventory in these seasonal kids and private brand categories, we can deal with the noise that’s created out there as others are promotional and I was driving by some stores the other day one of our competitors had a sign up in front that said buy one get one half off.

If I am a brand and I am trying to put my brand in that retailer, I would be embarrassed and that is not who DSW is, that’s not the way we play. We leverage our loyalty program and our ability to run our business day-in and day-out to provide value to our customers.

So I think if we stay focused on those things we can compete as people are playing that dirty promotional game..

Thank you so much..

You are welcome..

Thank you. And the next question comes from Rick Patel with Needham & Company..

Good morning, guys and congrats on the strong execution in a tough environment..

Thanks, Rick..

Great to hear the integration of Camuto was tracking ahead of schedule, can you give us a little more color on what you have learned from owning this business so far perhaps what you are most excited about and any surprises you have run into as we think about the rest of the year, can you talk about what you are hearing from – little bit more color on what you are hearing from Camuto’s legacy retail customers as they think about the fall open-to-buy?.

Yes, it’s great Rick. Thanks for the question. I think first of all I think there are the number one and most and the highest priority we had in engaging with this business was getting to know the leadership team.

And I am really excited with the team that we have there, our design and sourcing teams are as good as what we had expected and that’s fantastic and that ultimately is what differentiates this thing, it’s all about the people and the talent and the leadership that we need.

I think we are working in where we have opportunity, it’s the stuff that’s Simon had outlined on Investor Day it’s growing our branded business.

And as we mentioned earlier in the call, we have actually had our team go out there and engage on the digital side and we had a 46% comp within vincecamuto.com and I think getting that on the right platform that we can leverage long-term is a big deal.

I am also feeling really good about the execution of the brands in Camuto and what we are seeing in general with exception of a few retailers, our sales are outfacing our inventory position.

Unfortunately, we can’t fix the pullback in open-to-buy that has taken place over the last couple of years, but as we look to the fall access that we will have to open-to-buy based on the results we are getting in Q1 and hopefully we will deliver in Q2, we feel pretty good about our upsides for the fall season.

So I think growing that branded business is still really good, but I think more importantly long-term for DBI shareholder, it’s demonstrating the ability to pickup this private brand and we knew this team had disability based on the work they had done whether it be with Nine West or Tory Burch or a bunch of other people that they have done the work for, but our plan was to make this happen in 2020 and I specifically told the team you are not allowed to talk about doing this in the back half of 2019 and they obviously did not listen to me, because they have already picked up I think it’s over 800,000 pair of DSW private brand goods that will be design stores by the Camuto team for the fall season.

That is a huge win for this organization as you guys know from a profitability standpoint, but more importantly, it demonstrates the kind of leadership and the flexibility that Camuto organization has and that’s why we bought the business and it’s why we are excited about the future..

Can you give us a little more color on product performance at DSW, it sounds like women and kids were strong, what’s your level of confidence in that momentum in the context of comparisons getting a little bit more difficult here going forward and anything noteworthy or changes in trend to callout as we think about various product categories or key brands?.

I would say and think as you know we are not going to give a ton of color around that. I would tell you what I am really excited about is again the inventory positioning key items.

And we talked about this several times in the past about how our inventory would come down in a way that our conversion rates would decline in a materially way throughout second and third quarters as we transitioned out of sandals and into – and some boots.

And I love the fact that our team is managing key items in our in-stocks significantly better than we have ever done in the history of this business. So I think that’s the big upside. And for us again it’s all about the season category, it’s all about kids and it’s all about private brand.

And there are ebbs and flows that go with our business, but if we win at those we are going to have success. So that’s what the color I can provide you on sort of what’s working and what’s not working..

Thank you very much..

You’re welcome. Thanks..

Thank you. And the next question comes from Steve Marotta with C.L. King & Associates..

Good morning Roger and Jared.

As far as Q2 goes, you provided some additional color on which I appreciate and I know you do not guide quarterly, but do you expect the positive comp in the second quarter and can you just assemble a little bit about the comparison maybe of what was projected during the first quarter on what is the difficult comparison and what might be a current environment?.

Yes. Steve, I think the way that as I have said we are not going to provide quarterly guidance, but we are looking at the full year. And you look at Q1 we did a 5 comp from the 2 year basis. And that’s more directional as we see it throughout the full year.

And I think if you play that math out, I think that can at least give you some framework to sort of how – get a sense of how we see Q2 playing out. And as Jared have mentioned earlier there are some things that happened last year with the rewards re-launch or loyalty re-launch that created some margin upside last year and those kind of things.

We are very, very focused on the full year. And as Jared said the back half is going to be stronger than what the front half is going to look like. So that’s what I would tell you..

Okay, that’s very helpful.

Jared were there – I am just putting the final point on everything were there any metrics besides the share repurchase which drove the annual increase in fiscal guidance increase?.

No. What we wanted to do is just make sure we passed on everything that we could in the share repurchase and so what we did was basically take the full amount of the repurchase plus the incremental interest.

And I think on my script I think I have said net income dollars I meant op income dollars what were going to be the same because we do have a couple of million dollars of elevated interest expenses related to that.

Everything else we have passed on, because as I have mentioned before we feel very confident with our year even from where we were at the beginning of the year..

Sure, that’s very helpful.

My last question is you added 1.4 million loyalty members in the first quarter, what is that on base [indiscernible] please?.

That’s on the base of roughly 26 million..

You increased it over roughly 5% in the first quarter alone?.

We added 1.4 million there also was some churn of people that naturally rotate off because they have to make [indiscernible] or so..

Yes. I think now our net numbers roughly went 27 million..

That’s very helpful. Thank you so much..

You’re welcome..

Thank you. And the next question comes from Chris Svezia with Wedbush..

Good morning everyone and thanks again for all the color.

I guess just going back to – I just want to go back to the private brand color and commentary, well you said 42% increase, 13% of the business, you called out are you already getting call it 800,000 pairs for the DSW private brand for the back half of the year and I would assume that 42% increase in the first quarter includes Lucky and Jessica Simpson along with your existing private brands, so I guess the question is what’s the likelihood that that – you had the ability or the capacity to ramp that more aggressively than what you had looked at now or get more replenishment orders in faster than you expect, what’s baked into the guidance at this point in your projections and how quickly can you build into that maybe fourth quarter related to what you are looking at right now?.

So Chris the color we provided about private brand that does not include Lucky, Jessica and Vince. That’s just on Kelly Katie, Mix No. 1 those brands that we have historically had operating within DSW. So hopefully that answers that first question.

As far as ramping up, as we shared on Investor Day this organization was producing I will forget the exact math, but about 40% more units through this Camuto organization than it was last year. When you go back and look at its history I think the infrastructure is still there to ramp this thing up in a meaningful way.

What we are doing is making certain we do it in a measured way that ensures what we deliver is the quality of product that a consumer would expect from us.

And I am really excited to see that so far we have demonstrated the ability to do that and that makes me feel even more confident in our ability to hit our long-term goals that we had set out there..

Yes, I would add Chris specifically to Lucky and Jessica at DSW you heard Roger say in his comments we are very happy with the work we have seen the teams doing working together and especially in the fall being able to first look at those wholesale brands, second our private brands, and then to outside brands to fill in the assortment where we are excited with the traction we are seeing there of us working with those two groups..

And then Chris the other thing I would like add to that is that what we are doing here is not just to the benefit of DSW or Shoe Company, what Simon and Alex and the team that we have there at Camuto is doing, we are trying to learn how we move faster and we talked about this on Investor Day that one of the three pillars of Camuto is speed-to-market and we want to be the fastest player in the marketplace and being able to take our learnings from tests that we could do it at DSW on whether it be Lucky, Jessica, whatever brand or a private brand at DSW and take those learning and apply it to Macy’s, Nordstorm’s, Dillard’s whomever else on the retail wholesale side we could deal with, that’s an incredible upside for our wholesale partners that no one else in the footwear space can provide.

And we have been having those conversations with our retail partners on how we can bring that to life and that is what we are working towards.

We want to have a larger share of the consumers wallet whether it’s sold at DSW, whether it’s sold at Shoe Company, whether it’s sold at Macy’s, Nordstorm’s and Dillard’s as long as it’s something that we produce for them.

So the more we can use the DSW brand to learn that and apply to those businesses, we think that is a huge advantage for us in this space..

Got it, thank you.

Just follow-up just Jared for you, just so I appreciate the color trying to lay out some mechanics around guidance Q2 and EBIT, I just want to make sure I understand something it seems like from a revenue growth perspective, correct me if I am wrong potentially Q3 is the second strongest year-over-year growth rate and overall revenues maybe not the Q1, because you will be lapping most of the businesses.

Q2 is lower in terms of that revenue growth relative to Q3, Q3 strongest, Q2 second strongest and then obviously Q4 is elite in terms of year-over-year growth in revenue, is that – am I thinking about that right?.

Yes, I think so Chris. I will in our one-o-one I will have the growth percentage mapped out for you. I don’t have that year-over-year I am just looking at my dollar expectations. Certainly, I am seeing that from a dollar standpoint, but I just want to – I want to confirm on the growth percentages. So, let’s take that offline.

But Q3 – to reiterate, Q3 across every single one of our segment is the strongest and obviously Camuto will be brand new to Q3..

Got it. Alright, thank you and all the best..

Thank you..

Thank you. And the next question comes from Tom Nikic with Wells Fargo..

Hi, good morning guys. Thanks for taking my question.

I just want to ask about the kids business, I know you noted that the extremely strong growth in Q1 was driven by both the combination of comp within existing doors and the fact that it’s basically now in all your stores or it wasn’t in Q1 last year, I think right about now you are sort of lapping the full rollout.

So how should we kind of think about the growth of the kids business now that you are sort of on a comp basis companywide?.

Yes, thanks Tom. I want to talk to long-term opportunity of kids in the U.S. but I want to start with how successful we are in Canada with kids and the learnings that Mary and Billy and Jill and the rest of the team in Canada have provided us.

So we can penetrate as high as north of 20% in kids as we especially in that back-to-school time period up in Canada.

So we see they are being significant upside in kids, but I think more importantly, it’s not just about kids, it’s about getting that traffic to both our brick-and-mortar and our digital experiences that was going somewhere else to buy their kids footwear in the past.

And in the U.S., Bill and the team are really focused on how can they grow kids even though we are now lapping the stores being open for full year, I would tell you if we are not doing 20% or 30% comps in the kids category, I would be very disappointed in our team, because I think we are just now getting out there and consumers are starting to see that we carry kids.

And I think having a 3-year-old myself, we have lots of opportunities to stand more for key items and in stocks the way we do on the adult side in kids. So, I would say go forward it should be 20% to 30% kind of growth annually, but I think our team has higher expectations than that is what I would share..

Got it. Thanks Roger.

And just a quick follow-up for Jared, you bought back bunch of stock in Q1, shall we kind of think that, that’s sort of all the buyback you will do this year or would you potentially be opportunistic if you see a chance later in the year to buyback some more stock?.

Great question, Tom. As I always say we execute opportunistically and we look at not just the stock price, although that’s always something we look at first and foremost, we look at overall utilization of cash, expectations of the business, what might be looming out there such as tariffs or other things.

So I can’t commit to more or no more it will still be opportunistic..

Got it. Alright. Well, thanks and best of luck for the rest of the year..

Thank you..

Thank you. And this morning’s last question comes from Dylan Carden with William Blair..

Thanks for sticking me in there.

Just following-up on the last question I guess the balance sheet and sort of the debt pay-down versus buyback and the dividend obligation how do you think about that as far as timing on maybe sort of reducing some of the debt on the balance sheet?.

Yes. So, you saw that increase over the quarter and that was a direct result of the share repurchase. So as we have said before, we want to keep a minimum level of liquidity around at all times and that’s why you even see on the balance sheet outstanding at the same time we have got cash and investments not almost equal to our outstanding debt.

So that may seem a little backwards, but that’s just a way that we want to position our liquidity cushion. So, we will feel very comfortable utilizing our revolver if we feel that opportunistically now is the time to do that.

All that being said it is a revolver, so as cash comes in, if we are not buying back stock, if we are not reinvesting it in some other way that does just naturally pay down the debt, that is not a term debt that’s out there..

Great.

And just if I can squeeze one more in, Jared, certainly, it sounds if I am registering correctly, little bit more confidence in the Camuto business and what scenario that you outlay are pretty compelling, am I correct in that sort of where you were a couple of months ago and now you have got a little bit more confident in some of those numbers and the volatility of that business, is that fair?.

Yes, I think that’s fair. We have a couple of people from our teams that have been up there, including someone from our FP&A team that’s really started to instill more of the financial planning disciplines that we get used to here. So we started to get our arms around that. All that being said they still are a new organization.

We are inserting new practices such as balance sheet reconciliations and things like that. So, there is a couple of new things here and there we are finding, but we do feel much more confident around that.

And as Roger said around the adoption that their leadership team has taken to kind of these new muscles and how accountability and transparency are something that we live by here at DSW, at Designer Brands and they are adopting wholeheartedly..

Thanks very much..

So, I would like to close by saying thanks to all of you that have stuck by us and believe in this team whether that be our shareholders or board or Jay. I know a lot of our team mates that are listening to this call and my message to you is stay focused, focused, focused.

We have incredible opportunities to provide experiences and products for our customer that when we deliver on those we will win long-term and I think Q1 was a good start to the year. We have continued the momentum we had from 2018 and I am excited for the balance of the year. Thanks for everything you are doing and have a great day..

Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines..