DSW Inc.'s second-quarter profit fell 31% on falling margins and higher costs, but the drop was less than analysts expected and comp declines slowed. As a result, the off-price shoe chain boosted its earnings target for the year to a range or 37 cents to 45 cents a share from May's estimate of 30 cents to 35 cents a share.
The DSW chain showed a 2.1% due to a drop in units per transaction. The net sales gain reflected an increase of 32 more stores over last year, including three new stores in the second quarter, and the addition of the DSW.com channel that was not publicly launched until June of last year.
The seasonal category led footwear, driven by women's sandals and good early reads in boots. DSW also had “good results” in certain classic categories like plain pumps and comfort shoes. Men's remained soft. Accessories scored the best performance overall as handbags and small leather goods continue to be expanded.
Lease comps were down 9.9% as Sims assumed the shoe supply agreement at Filene's Basement following its acquisition of the chain.
Gross margins were down 180 basis points due to the timing of clearance markdowns taken to support a sandal sale that had occurred in the first quarter last year.
The SG&A rate was flat for the quarter at 23.4%, as planned increases in marketing, IT, and depreciation were offset by a decrease in store expenses and overhead.
At the end of the second quarter, inventories were down approximately 12% on a cost per square foot basis.
For the year, comps remain in line with its original guidance of negative mid-single digits. Its SG&A rate is also expected to increase over last year due to planned increased investments in marketing and IT.
