This summary is based on the second quarter fiscal 2007 earnings call conducted by DSW, Inc. (DSW) on September 5, 2007.
Director, Investor Relations: Leslie Neville
CFO: Douglas J Probst
Vice Chairman & Chief Merchandising Officer: Deborah L Ferree
President: Peter Z Horvath
Key Investors Issues
- EPS were 15 cents a share compared to 35 cents a share last year.
- Net income fell to $6.5 million from $14.3 million in the year-ago period.
- Net sales rose to $348.7 million from $301.3 million a year ago.
Second Quarter Highlights
Net sales increased 16% to $349 million.
- In-store sales increased 5.9% versus an increase of 2.2% for the same period last year.
- Gross margin rate decreased 490 basis points to 23.3% due to promotional activity aimed at clearing seasonal merchandise.
- The company’s goal was to aggressively manage inventory to enter third quarter in clean inventory position.
- Shifting to the declining gross margin rate was leased business segment which is directly associated with 102 Stein Mart locations added last January.
- SG&A increased 40 basis points over last year to 20.9% of sales primarily due to an increase in marketing to support the end of season summer sale and the planned investments to support IT and e-commerce initiatives.
- The net impact of the gross margin and SG&A performance was a 530 basis point decrease in operating income rate, 2.4% of sales.
Overall net income was $6.5 million compared with the net income of $15.3 million for last year.
- Earnings per share were 15 cents per share compared with 35 cents per share a year ago.
- Inventory compared to last year’s second quarter was flat on a cost per square foot basis.
- Level of clearance inventory was approximately half of the amount of last year and last quarter putting the company in a full price, forward-facing inventory position, heading into the fall selling season.
- Capital expenditures were $20 million in cash and short term investments remained flat for the quarter at a $175 million.
Focus for the second quarter was three-fold:
- Maximizing categories that were strong in the first quarter double and triple digit performers, such as juniors and all the women’s categories, fashion athletic, women’s casuals and beach sandals.
- Aggressive inventory management around slow seasonal performers such as dress sandals.
- To position third quarter inventory cleaner and crisper than prior year.
The promotional second quarter, including first summer sale, was successful on all levels.
- Comparable store sales were strong and the inventories going into third quarter are more forward facing than last year.
- The company is pleased with assortment in dress shoes and is getting positive reads on the over-riding themes of material interest including patent men’s wear, suede and reptile.
- Customer is responding well to the new fall colors such as brown, grey and old metallic.
- The company is pleased with the performance in seasonal department as well.
- Strategy to bring in fresh receipts in flip-flops to take the company through back-to-school and to continue basic sandal program at regular price. Those are strong comparable store sales in this category. This is continued into the third quarter.
- Boots have also had a strong start with inventories sufficient earlier than last year.
- Cold weather, specifically Shearling-look booties and basics are already performing well.
Inventory on a cost per foot basis is essentially flat to last year, with units down 8%.
Clearance units per store are at half of last year. Despite the earnings results, the company found the second quarter to be encouraging on many levels. The company was pleased with how customer reacted to promotional events, leading the strong comparable store sales and double digit increases in transactions per store. In addition the team demonstrated superb agility and collaboration in tactical adjustment to the business.
The company continues to raise the bar in bringing the customer a remarkable experience. It continues to see excellent progress from real estate, legal, store construction and store design teams which have driven improved speed and efficiency with each new opening.
The company recently rolled out new service model. The goal is to give the customer remarkable service experience. The company has implemented a full training program for store associates to learn to engage the customer, and partner with her in her shopping experience.
The company continued to see excellent progress in loyalty program DSW Rewards. DSW Rewards now has over 8 million members. Since the re-launch of the program last year, enrollment and retention metrics have continued to trend up. The company leveraged loyal customer base predominantly through email contact, to drive transactions, traffic, comparable store sales and new customers to the store. The company has invested in top industry talent and technology.
Year-to-Date Financial Highlights
- Net income was $30.3 million on net sales of $705.7 million compared with net income of $32.9 million on net sales of $617.8 million for the six months ended July 29, 2006.
- Same store sales increased 0.9% for the comparable twenty-six week period versus an increase of 3.2% last year.
- Earnings per share were 68 cents per share compared with 74 cents per share for the same period last year.
