DSW Inc. predicted earnings in the first half of 2008 would be “significantly below” the 68 cents per share reported for the first half of 2007. The off-price shoe chain also forecast negative comps for the period. The forecast came as DSW reported that Q4 earnings nosedived 94.4% to $1.1 million, or two cents a share, from $16.6 million, or 37 cents, a year ago. Revenues increased 1.1% to 332.5 million from $329.1 million, with comps ahead 1.0%. Gross margins decreased 520 basis points to 21.9%, due mainly to an increase in markdowns. Results were slightly below a forecast given in December. At the time, DSW predicted full year earnings would come in between $1.24 to $1.29 a share; they came in at $1.21. DSW ended the year with inventory down on a cost-per-foot basis, and clearance at the lowest level ever.
On a conference call, Peter Horvath, DSW's president, said the company will be absorbing some extra costs in the first half to launch its e-commerce site as well as expenses tied to finalizing the switch over of shared services from its former parent, Value City. But much of the profit warning is tied to macro conditions, mentioning sluggish retail traffic over the last seven months and declining consumer confidence.
Debbie Ferree, vice chairman and CMO, said that given the tough climate, DSW plans to sharpen pricing, focus more on commodity items, and aggressively seek out in-season opportunistic buys. She said continuing to offer a strong value proposition will help DSW gain market share in 2007. DSW plans to continue to place a greater focus on buy now/wear now merchandise, which led to a strong sales and margins in boots during Q4. All other categories registered negative comps in Q4. Feree was particularly disappointed that the flat and vulcanized trends continued to slow and that a dominant fashion trend had yet to emerge in its young attitude area. For spring, colors, prints, natural bottoms and flat sandals have all emerged as important must-haves.
