DSW Earnings Call Insights: Luxury Side and Weather Impacts

DSW (NYSE:DSW) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Luxury Side

Scott Krasik – BB&T Capital Markets: Just a quick one on the luxury. Is the $5.25 million in the year calling out, and the 10 X million of net income, is that just the apparel piece, or does that include some footwear as well?

Michael R. MacDonald – President and CEO: That includes the whole luxury piece. Both Luxe810 which is the website piece and the apparel that we tried to sell throughout those five pop up stores.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Scott Krasik – BB&T Capital Markets: So, for lack of a better word, we’re trying to, in essence make, it appear like, we’re trying to put it apples-to-apples like it the Luxe810 never happened, is that right?

Michael R. MacDonald – President and CEO: Yes.

Scott Krasik – BB&T Capital Markets: Then just in terms of your outlook, your visibility in terms of some of the seasonal categories, even though you’re very clean on inventory, are you assuming that the industry overall is going to be very promotional and then, because you don’t have a back-to-school business and others really do. Are you planning your inventory receipts or business differently in the second quarter than others who are expecting a big benefit in Q2?

Deborah L. Ferree – Vice Chairman and Chief Merchandising Officer: This is Debbie, I’ll take that question for you. First of all, we’re not a promotional business. What we did through the downturn in sandals which was down 15% comp for the quarter, what we did is we managed receipts, number one, by matching the inventories or the receipts to what we thought the sales plan would be and number two, as you saw in mid-April, what we did, is we took a really sharp price point that we had, $39.95 and under and we simply marketed or communicated to our customer that we had some really sharp values in the assortment, but we didn’t take promotional mark downs to really get there, we really just communicated the strength of our value proposition and actually on that group of style that we marketed, actually when you look at a nine month point of view, we came out better. We’re projecting that we come out better in margin, than had we done nothing with those shoes in terms of promoting them. So, I would tell you, we just did what we always do. We managed receipts and we talked about our value proposition. As far as Q2 is concerned, I see some additional upside that we typically would not go after for back-to-school, because we’re not really a back-to-school business, our business tends to be a little bit more even throughout the season, but we’re seeing a couple of different things that we’ll do differently this year. Number one, I do think that we’ll extend our sandal season in a couple of key styles. It’s a message to our customers that are going to back to school, back to college. So you’ll see a few more purchases and styles that support the Big It items of the season in terms of sandals. So we’ll extend probably into the third or fourth week of August a little additional sandal business over what we did last year. That will not be dilutive to the margin. It will be accretive to the margin because we’re going back and remind the It items, we’ll own them in the right sizes and that will be at regular margins that you would normally see at the beginning of the sandal season. That’s number one. Number two how we manage our boot-to-bootie penetration will be different this year. We saw boots continue through first quarter this year, and there are some opportunities that we learned that will have in second and third quarter. We learned that from what we missed in first quarter. So you’ll start to see a bootie penetration penetrate a little bit higher than it was last year, starting – beginning of July through the beginning of September. I think that will be additional business for us. So those two thing; extend the sandal season by four weeks, number two, change the penetration mix between boots and booties…

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Scott Krasik – BB&T Capital Markets: Then just to follow up on that, based on the NRF calendar, can you say sort of what magnitude that extra week you’re going to get if, I guess, the first week of November meant to you last year just for modeling purposes?

Douglas J. Probst – EVP and CFO: Scott, not at this point. I would hesitate to throw out a number on the call. But let us do a little homework on that and try to frame that up.

Weather Impacts

Jeff VanSinderen – B. Riley & Co. LLC: Just wanted to follow up on the weather situation. Any other color you can give us on what you saw in the colder markets versus the warmer markets? Then maybe you can give us more color on what you’ve seen, since the weather has broken in the last – well, I guess since the last month of the quarter?

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Michael R. MacDonald – President and CEO: Well, there really weren’t – a year ago there really weren’t very many temperate parts of the country. It was pretty much record warm temperatures throughout the entire first quarter, every place except around the West Coast. This year, most of the country was cooler than normal and they keep these records, these weather records on averages for the last 118 years. They rank each state in the country and then they regionalize the states and I think there was a change, year-over-year change on average of about 60 places in terms of the ranking from 1 to 118. So it was a dramatic turnaround and it affected virtually the entire country, less so in the South and even less than that in the West. But in terms of the Northeast, the Mid-Atlantic and the Midwest, it was a dramatic turnabout. Our weather reflected that as it happened. We joked internally and we said that the calendar was literally four or five weeks late and the business we got in March, we should’ve – or in April, we should’ve been getting in March. That’s literally how it worked out. As Doug said in his remarks, the business actually got a little weaker as we moved into March and it was on the basis of the strength of the rebound in April that we were able to come out with a negative 2 comp. So, as tough as it was early, it was drawn late and we finally got some consistent warm weather and the all areas of the business jumped up, but of course the sand oil and all opened up footwear, even some of the athletic businesses that are weather dependent jumped up more than the average, so we were pleased with the way the business rebounded, and we’re continuing to monitor the business, we think there’s still some pent up demand out there, and I think it’s going to be a while before we really discern our underlying sales trend. So, in terms of managing the business, we’re still trying to be prudent on our expenses and careful on our inventory management and we know that when we do that, we make more money, if the business turns up and we minimize any downside if the business turns down. So, I feel like we did a fantastic job of managing through a very volatile time period in terms of weather and sales and I feel like we’re positioned exceptionally well as we start the second quarter, with actually some wind in our sales because of the strength of April.

Jeff VanSinderen – B. Riley & Co. LLC: Is it fair to say that you feel like your inventory at this point is clean?

Michael R. MacDonald – President and CEO: Yup.

A Closer Look: DSW Earnings Cheat Sheet>>