DSW 4Q14 Earnings Call Notes

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Team changes lead to turnaround

“At the outset of the year, we made a number of leadership changes in our buying organization. These changes led to a resurgence of our women’s footwear business, which contributes over 60% of total revenues. After four consecutive quarters of comparable sales declines, the women’s footwear category turned positive in Q3 and recorded a strong 6% increase in Q4.”

Omni-channel investments come with costs to margin

“All of these actions came with consequences. Our markup contracted, our shipping costs increased, our shipping revenue declined, and our marketing costs de-levered. To be clear, I consider these costs to be investments in our business that are paying off.”

West coast port delays

“let me say a couple of words about the West Coast port delays. First, we’re delighted that the labor contract negotiations have apparently been settled. However, the processing slowdowns that we have seen for the last several months have resulted in product delays. We’ve been able to offset some of these delays with the early release of our pre-buy inventory.’

Omni sales come with added cost

“I think we have changed the way – we’ve changed the business to respond to how the customer wants to shop. And last year, we did almost $100 million worth of what we call omni-sales, where the customer demands it in one place and we fulfill it from another place. She expects us to do that, and we are continuing to drive bigger increases off of that very substantial base. And unfortunately, with that comes some higher shipping costs because it costs us more to ship from store than it does to ship from our fulfillment center. And about half of those omni-sales are being shipped from our 430-some stores. So it does come with a cost, and that’s been fundamental.”

Higher costs are structural

“And then the other thing that’s happened is that we’ve made a conscious decision to beef up our marketing budget. So I guess what I’d say is the shipping cost is structural. The markup is structural. But it’s having favorable impacts particularly in Q4 on our markdown rate. The marketing probably is structural. And some of the higher markdowns that we experienced in 2014 are not structural. They should be correctible.”