DSW Inc.'s first quarter same-store sales fell 4.7%, due primarily to a drop in units per transaction. Traffic and conversion were relatively flat. Overall sales increased 5.3% due to 34 new stores over last year and the June 2008 launch of e-commerce.
Merchandise margins increased 120 basis points to 43.6% of sales due to fewer clearance markdowns. Gross margins increased 70 basis points to 27.2% of sales as occupancy expense grew related to the negative comp. The SG&A rate increased 200 basis points to 24.1% of sales, due mainly to the planned increase spend in marketing and IT. Management noted that new television ads have helped traffic.
Inventories at the quarter's end were down approximately 3% on a cost per square foot basis, which was slightly higher than planned due to a large opportunistic buy of Italian shoes designed to drive traffic.
In his first conference call since being named president and CEO, Mike MacDonald said the company's “most important objective” is top-line growth after marking seventh consecutive quarter of negative comps.
Growth strategies include better aligning sizes to local customers, expanding unpenetrated areas such as men's and accessories, better utilization of its customer rewards database, defining the “optimal prototype” for future stores and expanding leased-shoe businesses in department stores. DSW also plans to create an online system that identifies size availability by location, including its dotcom fulfillment center.
DSW also plans to grow e-commerce and better align its website to in-store sales.
On the margin side, the former Shopko executive said DSW plans to continue many of the initiatives already underway in the areas of size enablement, purchasing inventory on an FOB basis, increasing its private brand penetration and assortment planning.
DSW reiterated its fiscal 2009 guidance, calling for a mid-single-digit decrease in comps and EPS between 30 cents to 35 cents, versus 61 cents earned last year.
