Efforts to liquidate inventories and to wind down some businesses helped DSW post results for its first fiscal quarter ended April 29 that exceeded Wall Street expectations. During the last quarter, the group announced its exit from Ebuys, an e-commerce off-price footwear and accessories company it acquired in February 2016 for $62.5 million upfront, plus additional payments. DSW said the challenge of sourcing the right merchandise in a sustainable way and the requirements to scale the business entailed unacceptable economics in the near term.
The management is seeing the benefit of a more productive inventory position after two years of de-stocking. It said this drove a higher regular price mix and higher gross margins, and enabled it to post meaningful improvements across all categories. In particular, sales of footwear recorded an increase in comparable sales for the fourth consecutive quarter. DSW is also starting to consolidate its vendor base to cut costs, and expects the company to become a “more meaningful account” to fewer vendors.
On marketing, increased investments in customer-facing marketing is driving digital engagement, rewards enrollment and new customer acquisition. The management noted that recent investments in inventory, marketing and payroll are beginning “to move the needle,” adding that it is intent on further driving this positive momentum and improving customer engagement with the launch a few weeks ago of its new loyalty program called DSW VIP.
Revenues improved by 2.9 percent from the year-ago quarter to $712 million, including $5.6 million from residual Ebuys operations. Excluding the exit of Ebuys, total revenues went up by 7 percent. Comparable sales for operations for the 13-week period ended May 5 were up by 2.2 percent over the comparable period in 2017.
In the DSW division of the group, sales went up by 7 percent, driven by a 2 percent growth in comparable sales. Recent investments in digital marketing drove strong momentum in online demand, which increased by 36 percent. The number of transactions was up in the low single digits, with significant gains in new customer activity. The athleisure category continued to drive positive comparable sales. Cooler temperatures led to strong boot sales, while delaying the start of the sandal season. However, comparable sales of women's sandals still grew by a low single digit, with a healthy snap back from the arrival of warmer conditions. The company added a DSW Kids corner to 109 stores in the quarter and expects to bring it to an additional 94 locations during the second quarter.
The ABG segment, which operates licensed shoe departments inside Stein Mart, saw comparable sales climb by 5.1 percent. The number of ABG stores declined by four to 289 during the quarter.
In total, DSW ended with 517 stores at the end of the quarter.
The company's gross margin improved by 0.4 percentage points to 28.9 percent, mainly due to the wind down of Ebuys. Net income advanced by 6.5 percent to $24.3 million, including net after-tax charges totaling $7.2 million related to the exit of Ebuys, foreign exchange losses and transaction costs related to the acquisition of further shares in Town Shoes, a Canadian shoe retailer in which it began to invest four years ago. Excluding these items, adjusted net income was $31.5 million.
DSW said it is positioning itself in 2018 to return to a more normal inventory level in key categories while funding the roll-out of DSW Kids to the remainder of the retail fleet. It expects full-year revenues to decrease by one to three percent, with same-store growth in the low single digits. The company plans to open only three to six new physical stores this year.