Weighed down by sluggish sales and higher expenses,
due in part to the launch its first e-commerce site, DSW's first quarter profit plunged more than 50%. Near the end of March, the family footwear retailer had warned that earnings in the first half of 2008 would be “significantly below” the 68 cents per share reported in H1 2007.
On a conference call with analysts, Debbie Ferree, DSW's chief merchandising officer, said the comp performance continued to reflect “the effects of an uncertain consumer environment.” She also noted a continued lack of “significant must-haves” in footwear. Geographically, the top comp performance came in the Northeast while weakness was seen in the Midwest.
Dress, DSW's biggest category, delivered a flat comp for quarter, but Ferree was encouraged that some trends seen during the fourth quarter – such as color prints and natural materials – exceeded expectations in the first quarter. DSW is also seeing positive customer response to better brands in all areas, including dress, casuals and sandals.
The comfort category, which includes men's and women's comfort casuals and women's comfort sandals, delivered a “nice comp increase,” partly reflecting a deeper inventory commitment from DSW.
The gross margin erosion was due mainly to an increase in markdowns designed to keep inventories fresh. Excluding the incremental inventory investment for its e-commerce business, inventory at quarter-end decreased 10% on a cost per square foot basis.
Units of inventory and clearance were down over 40%.
DSW reiterated its previous annual EPS guidance of 75 cents to 85 cents per share for fiscal 2008, which compares to earnings of 79 cents in fiscal 2007.
