Aggressive markdowns caused DSW Inc.'s Q2 profits 
to fall well below forecasts as earnings per share of 15 cents came in at less than half the Wall Street consensus estimate of 31 cents. For the year, the company still sees earnings of $1.63 to $1.68 a share. Analysts were expecting $1.66.
Gross margins decreased 490 basis points due to “significant promotional activity aimed at clearing seasonal merchandise,” management said on a call. Also impacting the rate was lower margins from leased departments, reflecting the addition of 102 Stein Mart locations last January.
On the call, chief merchant Debbie Ferree said DSW focused in Q2 on maximizing categories delivering double and triple gains in Q1, mentioning juniors and all the women's categories: fashion athletics, women's casuals and beach sandals. At the same time, it aggressively cleared slow seasonal sellers, particularly dress sandals. “The promotional second quarter, including our first summer sale, was successful on all levels,” said Ferree.
SG&A, increased 40 basis points during the quarter over last year to 20.9% of sales, primarily due to an increase in marketing to support the end of season summer sale and the planned investments to support our IT and e-commerce initiatives.
Inventory was flat on a cost per square foot basis at the quarter's end, with clearance inventory approximately half of the amount of last year and last quarter. Ferree said men's and women fashion athletic continues to dominate athletic performance, and DSW has positioned inventories to further capitalize on this trend for Q3.
The chain is pleased with its fall assortment of dress shoes and “getting positive reads” from the overriding trend themes. A focus on fresh receipts in flip-flops for BTS and a continuance of its basic sandal program at regular price drove strong Q2 comps in this category. Boots were brought in earlier this year and are “off to a strong start” with shearling and booties “already performing well.”
