DSW is taking a $52.7 million write-down on the value of its Ebuys unit assets after revising its long-term expectations for the off-price shoe e-tailer based on its performance over the last 18 months, according to a company press release.
EBuys' performance was not included in the company's adjusted third quarter results released the same day. The footwear retailer announced the acquisition of the online sales site in February 2016 and several analysts warned then that it could impede DSW's own sales.
The announcement came as DSW also reported that third quarter sales rose 1.7% year-over-year to $708.3 million as same-store sales fell 0.4% and e-commerce sales, aided by mobile, rose 26%.
Unseasonably warm weather in early autumn hurt the important selling months of September and October for DSW, especially in sales of women's boots, though sales picked up in the second half of October, Chief Financial Officer Jared Poff told analysts last week, according to a transcript from Seeking Alpha.
In addition to the earlier warm weather, hurricanes didn't help either, hurting same-store sales by some 50 to 60 basis points, he said. Footwear same-store sales increased in the low single-digit range, while accessories declined in the low-teens. Its women's business was strong in both athletic and non-athletic footwear, Poff said.
But its Ebuys purchase has become something of an albatross, with merchandising misses and high fulfillment costs. Revenue from the lower-priced unit rose 6% in the quarter and 17% year-to-date, but gross profit was negative for the quarter as DSW took substantial markdowns to move through sizable amounts of slow-moving inventories, the company said.
DSW's "progress was offset or diminished by accessories … and Ebuys, which was again written down, hit gross margin by [around] 45 basis points in Q3 and is expected to incrementally hinder [earnings] in fiscal 2017 by 5 [cents per share]," Wedbush analysts said in a note emailed to Retail Dive. "Essentially Ebuys muddied a story of progress that was already hindered by uncooperative weather."
Executives expressed confidence in Ebuys, however, saying that the company's operations on "multiple marketplaces simultaneously and serving customers across the globe" are "valuable and unique."
"To that end, we have installed new leadership at Ebuys and are deeply evaluating this model ... and how it best fits within DSW's growth strategy, while simultaneously aiming to shore up the operating losses of this business," Poff said.
DSW executives touted the more profitable side of its operations, saying that DSW's equity investments in Canadian Town Shoes brought $1.6 million of income in the quarter quarter, its power stores are "significantly outpacing" the balance of its chain, its DSW kit sales exceeded expectations and its lab store in Columbus, OH, continues to post robust results, validating its new store design. The retailer plans to open four more stores along the lines of the Columbus pilot in the first half of the year, CEO Roger Rawlins told analysts.