DSW on Tuesday reported second quarter sales rose 3.3% to $680.4 million, beating the Zacks Consensus Estimate for $669 million, and same-store sales edged up 0.6% compared to last year's 1.2% decline — turning positive for the first time since 2015, according to Zacks. Reported gross profit in the quarter rose by 50 basis points, driven by lower markdowns and favorable sourcing, partially offset by inventory reserves and distribution costs related to the ongoing integration of Ebuys, according to a company press release.
E-commerce sales in the quarter rose 27%, thanks to mobile traffic growth. The company reiterated its full year outlook for adjusted earnings in the range of $1.45 to $1.55 per diluted share, according to a press release. Shares rose some 13% Tuesday on the news.
Reported operating expenses as a percent of sales in the quarter improved by 10 basis points, with higher selling and technology expenses offset by lower overhead costs, while reported net income was $28.6 million, or 35 cents per diluted share, including pre-tax charges totaling $3.2 million, or 3 cents per diluted share, related to the acquisition of Ebuys, restructuring costs and foreign exchange loss. Q2 adjusted net income was $30.6 million, or 38 cents per diluted share, well above the Zacks Consensus Estimate for 29 cents.
As consumers become more comfortable buying shoes online, any footwear-selling retailer ready for that is benefiting, including, of course, Amazon. DSW has positioned itself well, leveraging its stores to fulfill online orders for a while now. But its stores remain pivotal, and GlobalData Retail Managing Director Neil Saunders said that’s a problem.
"[T]he recent redesign and relaunch of the [DSW] website and mobile apps are helping to improve conversion and average transaction values. Over time we expect the improvements to pay further dividends," he said in a note emailed to Retail Dive. "We still believe that most DSW physical stores do not deliver a good enough experience. … [T]he store-based footwear proposition lacks excitement, is too focused on replacement purchases of more formal footwear, and is cluttered and hard to shop."
That makes it "too early" to declare DSW’s brand fully revived, Saunders said, "especially as the 0.6% same-store increase remains soft. The addition of 30 more stores over the past year helped inflate the same store number to 4% growth on a total basis."
The company is doing poorly when it comes to supplying other retailers with footwear — its ABG unit — in part due to the Gordmans bankruptcy earlier this year, though Saunders expects new opportunities to arise to correct that, in particular through Stein Mart.
More importantly, DSW is improving its visual merchandising, store formats and the assortments themselves, including a new private label "Made in Italy" line, which Saunders said should drive traffic and conversion. That will help in the challenged segment, in footwear in particular and among the budget shoppers that DSW serves.
"The initiatives DSW is taking are important, not least as we see continued softness in the mainstream footwear market for at least the remainder of this year," he said. "Among the demographics DSW serves, finances remain a concern and shoes are often deprioritized in terms of the things people intend to buy. In some ways, one of DSW's jobs is to make footwear a more compelling and important purchase. Better marketing efforts, especially in digital, will be vital in supporting this."