Source: Company reports/Fung Global Retail & Technology

2Q16 RESULTS

DSW reported 2Q16 revenues of $658.9 million, up 5.1% year over year, which beat the consensus estimate of $658.7 million. The revenue increase was due to the acquisition of Ebuys, an e-commerce off-price footwear and accessories retailer with a presence in North America, Europe, Australia and Asia, and the launch of three new stores in the quarter. The company also launched its DSW Kids line in nearly 206 stores at the end of the quarter. The DSW Kids launch is performing to expectations and the company noted improvements in traffic and attachment rates and higher units per transaction since the launch. More than half of DSW’s reward members have a child in their household. Comparable store sales decreased 1.2%. DSW attributed the lower women’s comparable sales to the increased demand for dress shoes combined with the less favorable weather, which negatively impacted sandal sales. Men’s athletic shoes outperformed the non-athletic comps, a testament to the popularity of the fashion-casual lifestyle. The company also said accessory comps continue to be an area of opportunity; their gross margin is down by close to 200 basis points. The company is exploring gift-giving options and ways to increase units per transactions and average dollar sales for this category. In addition to the DSW Kids line, the company will roll out designer brands and add a new private-label men’s brand to appeal to the young, fashion-conscious consumer. The company will also add a new line of affordable fashion for girls this year. The majority of DSW’s omni sales are fulfilled from the stores, and digital demand is growing by 31%. Capital expenditures for the second quarter totaled $26 million, with $10 million spent on stores and the balance spent on technology and business projects. Management completed an expense review and decreased the capital budget by $10 million, to $85 million. This decrease reflects fewer store renovations and technology projects. DSW opened three new stores during the second quarter and closed one store, which resulted in a net increase of 12 DSW stores this year. The company expects to open 21 stores during the fall season. At the end of the second quarter there were a total of 480 DSW stores in the United States.

2016 Outlook

Guidance was reiterated for full fiscal year earnings per share of $1.32 to $1.42. The company maintained its outlook for a comp decline in the low single-digits.