Net income declined 11% to $34,515,000 from $39,860,000 for the period ended May 4 and included a $0.25 a share impact, largely related to inventory reserve, for the retailer’s foray into luxury merchandise. Revenues rose 8% to $601,362,000 from $558,572,000 as a stronger April enabled DSW to finish Q1 with a -2.4% comp that was driven by a significant gain in conversion and slight increase in AURs, partially offset by lower store traffic. Gross margin dipped 100 b.p. to 33.5% on a less favorable sales mix and difficult comparisons. Period inventories were down 5%.
In Q1, men’s comps rose 8% versus a 7% gain as all categories but sandals improved. Women’s footwear comps dipped 6%, driven by a double-digit decline in sandals. Casual footwear and boots experienced a large percentage increase from a small dollar bases. Athletic comps fell 1% as performance, which accounts for two-thirds of the segment, outperformed fashion offerings. DSW confirmed that running is the banner’s strongest athletic category and that it has begun to see strong gains from cross-training, which comped up double-digits. The retailer’s athletic segment is described as “positioned well” in terms of content and inventory heading into the Back-to-School season. Meanwhile, accessories comps gained 11% and private brand merchandise sales grew to 12% of merchandise sales.
DSW has a number of systems initiatives underway that it believes will improve its business and enhance customer experiences with the retailer. Among these: the ability to drop shop to customers from supplier warehouses with the first vendor on-board by year-end; a charge-end system starting in H2 that will enable to DSW to locate a desired shoe from any of its stores or fulfillment centers regardless of where the customer is shopping; and electronic retrieval of customers’ unredeemed reward certificates at point-of-sale will be available in all doors, from two-thirds currently, by year-end.
The company’s current FY13 outlook calls for flat to +2% comps and an EPS range of $3.40-3.60 ($157.0 mm), excluding any impact from the RVI merger or luxury test.
Written by Nicolas Yang
