DSW Ups Full-Year Guidance on Strong Q1; May See Fashion Athletic Slowing…

DSW Inc. saw all regions of the U.S. provide positive comp store sales results for the fiscal first quarter ended April 29, with the West and Northeast showing the most growth for the family footwear retailer. DSW is getting contribution from a number of key categories in men’s and women’s footwear and is also seeing strong gross margin gains in some accessory categories.

The overall improvement in gross margin for the period was primarily due to an increase in initial markup and a decrease in distribution center costs as the company improved on their operational efficiencies. While reported SG&A saw a 340 basis point improvement to 20.7% of sales for Q1, about 100 bps of that improvement was due to a one-time $6.5 million charge related to the data theft issue in Q1 2005.

Casual sandals, better dress, and young attitude dress were said to be the key drivers in the women’s business, with neutral colors and natural materials showing the most energy on the casual side. Young men’s drove the positive comps in men’s. The athletic business also comped positive, with women’s street fashion driving the gains.

DSW Chief Merchant and Vice Chair Debbie Ferree may be saying what others are thinking these days, articulating to analysts on a conference call that the fashion athletic trend may be “calming down a bit.” She said it is very stable and still a very important part of their business, but pointed to the fact that it has been “out there for two to three years” and is “very over-assorted.” She said the key to staying successful with the street sport category is to “manage the styles, edit your assortments, and really manage those inventories.” The athletic business for DSW was as high as 35% to 40% of the total business, but she said that percentage will get even stronger for back-to-school. She pointed to the canvas and vulcanized business in casual as another key growth area for BTS as it was not as big of a story last year.

Ferree said the highest margins were coming out of the sandal category, the casual footwear (excluding casual athletic), and casual street sports businesses.

Based on the first quarter performance DSW raised its full year EPS estimate to a range of $1.24 to $1.27 per diluted share, up from its previous estimate of $1.22 to $1.25. Comp store sales are projected to increase 3% to 5% for the year.