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After Reorg Impacts 1,000 Jobs, DSW Parent Adds Liquidity with New Debt

On the heels of a reorganization last week that impacted more than 1,000 jobs, Designer Brands is taking on new debt to float the footwear firm through the tumultuous retail landscape ahead.

In a July 30 staff memo, CEO Roger Rawlins described the reorg as a “painful but necessary” action addressing retail’s “new normal” after months of store closures curtailed sales that e-commerce, though strong, couldn’t fully recoup.

“It’s a new day and we must operate in a new way,” he wrote in the memo, noting that the company remains focused on “sustaining our industry-leading position while building for a sustainable future.”

Rawlins outlined plans to postpone new store openings and hinted at possible closures to trim “occupancy expenses.” And actions taken at the onset of the pandemic, like furloughing staff, cutting pay and negotiating new agreements with vendors and other partners, weren’t sufficient to avoid the headcount reduction, which affected 380 corporate office and 700 store associate positions, some of which were vacant, he added. The changes affect 7 percent of total store associates and eliminate approximately 22 percent of all North American corporate office associate positions.

On Friday, the company, which operates a portfolio of retail concepts in nearly 1,000 locations under The Shoe Company and Shoe Warehouse banners in addition to DSW, announced steps taken to enhance the company’s financial flexibility.

Designer Brands said it replaced its $400 million revolving credit facility with an equally sized, asset-based revolving credit facility, maturing August 2025, and completed a $250 million privately placed senior secured term loan.

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“Since confronted with the challenges posed by COVID-19, we have acted decisively to prioritize the health and safety of our associates and customers and protect the long-term sustainability of our business,” Rawlins said in a statement. “Today’s announcement represents another critical step that increases our financial flexibility and total liquidity. These actions, combined with previously announced steps to manage expenses, including the initial furloughs and recent internal organization restructuring, will strengthen our position as we continue to navigate the rapidly evolving consumer landscape.”

The new revolver contains a covenant regarding minimum availability and provides additional flexibility to maneuver through an evolving consumer landscape. The facility also allows the company to enter into other select financing arrangements, including the new senior secured term loan. PNC Bank N.A. served as administrative agent and PNC Capital Markets served as joint lead arranger and joint bookrunner.

The company announced the closing of a $250 million senior secured term loan that will be used to increase liquidity and support ongoing needs. The term loan, which matures in August 2025, contains certain customary affirmative and negative covenants and requires limited amortization over the course of the loan. The term loan was agented by Sixth Street.

“As a result of the actions we have undertaken with our lending partners, we are confident we have sufficient liquidity today and in the future to provide us with the flexibility to navigate the current complex environment and pursue our long–term business strategy,” chief financial officer Jared Poff said.

As part of its reorg, Designer Brands has offered 550 store associates the opportunity to remain with the company in a different role or choose to accept severance payment. Following these actions, the company expects annual cost savings of approximately $40 million pre-tax and net of planned reinvestments in the business.

The company also reported that at the end of the second quarter of fiscal 2020, 517 of Designer Brands’ retail locations in the U.S. and 145 locations in Canada have reopened, representing 99 percent of the company’s overall footprint. Management will reopen the remaining four U.S. locations once local conditions and factors governing reopening decisions, including state and local guidelines, have been evaluated.

“We are pleased that store locations across North America are continuing to reopen with new procedures in place to keep our associates and customers safe,” Rawlins said, while new virus flare-ups are keeping many customers away from brick-and-mortar stores.

The company has responded to these headwinds by accelerating its markdown cadence “in seasonal and dress to ensure a clean inventory position exiting Spring,” Rawlins added.

“Given the environment, we are moving quickly to adapt our business model, including pivoting our product assortment away from seasonal and dress,,” he said, “and moving deeper into athletic and casual in order to be in a stronger position to meet customers’ current needs in the important fall season.”

Rawlins added that the company is “evaluating opportunities to optimize our real estate portfolio,” and is “actively discussing go-forward lease terms with our landlords” to better match up traffic trends, and attendant sales, with lease obligations.

Designer Brands also designs and produces footwear and accessories through Camuto Group, a leading manufacturer selling in more than 5,400 doors worldwide. Camuto Group owns licensing rights for the Jessica Simpson footwear business, and footwear and handbag licenses for Lucky Brand and Max Studio. In partnership with a joint venture with Authentic Brands Group, Designer Brands also owns a stake in Vince Camuto, Louise et Cie, Sole Society and CC Corso Como.