With toning driving strong gains in athletic footwear, DSW Inc. reported Q1 same-store sales increased 16.2% versus a decrease of 4.7% last year. Coupled with a 270 basis point improvement in merchandise margin due to significant regular price selling, earnings jumped four-fold in the period.

 

Double-digit comp gains were achieved in all major footwear categories of women's, men's and athletic, as well as accessories. The gains reflected increases in customer traffic, customer conversion, and in average unit retails. Toning carried the athletics category. Excluding toning, athletics would have shown a low-single digit comp decline.

 

On a conference call with analysts, DSW management said toning now accounts for 15% of its athletic volume and between 2.5% and 3% of total volume. But Debbie Ferree, vice chairperson and CMO, expects that to increase as the category is “really being on the front end of the growth curve right now.” She noted that while toning product began reaching stores in Q309 and Q409, it wasn't until Q110 that “we were really in a pretty good position in toning inventory.” She also said that so far, toning was not cannibalizing any other categories within its mix although she conceded it may eventually happen.

 

“As you look forward with some of the new product that manufacturers are delivering, I'm thinking that it could start to cannibalize some of the casual business, because the toning product is really coming down,” said Ferree. “It's more low-profile now. It's not only those high bottoms.

 

And I think it may cut into some of the other athletic categories, could be walking or court and may get into some of the black and brown business in casual.”

 

In women's, sandals were particularly strong. Men's benefited from better fashion and price point balance, as well as the expansion of the size replenishment system.

 

DSW reiterated its upgraded guidance given on April 27. Comps are expected to rise 6% to 8% with EPS reaching $1.65 to $1.75, which compares with $1.23 in FY09. The gains are all expected to be driven by its first-half performance.