DSW 4Q16 Earnings Call Notes

Debbie Ferrie

Weather impact

“The warm weather at the beginning of the quarter stimulate sales of fashion boots, athletic and casual footwear. With the onset of cold weather in December our merchandizing and marketing strategy created a stronger than expected demand in boots which allow our team to deploy some pre-buys we’d allocated for next year. With the strong results from our cold weather business coupled with our decision to chase a number of fashion styles early in the third quarter we beat our bid forecast for the season. This Spring we’ve positioned inventories appropriately, with transitional merchandize and a sandal assortments that we will carry in our warm doors all year round.”

Partnership with Under Armour

” I am particularly excited to announce our brand partnership with Under Armor this year. The influence of athletic also carried to our men’s business, but overall results have been below planned. We are aggressively managing our assortment of core items while increasing the freshness within men’s dress and casual with relevant sport influenced fashion…We’re very pleased to announce our new partnership with Under Armor and we are developing, it’s a collaboration where we are developing unique product and it will be unique product for DSW with their design team.”

Roger Rawlins

Approaching real estate with a digital lens first

“Yes, I can take the real estate question. So Jeff one of the things that we continually talk about is, we are looking at our business as a digital business and with the digital business you have to place warehouses close to your consumer and with our 500 warehouses we have today, we’re within 20 minutes of 70% of the U.S. population. So when we’re looking to build out a new warehouse we’re trying to figure out, how can we get closer to that customer, so that someday we can meet that demand of the customer of delivery within whatever short period of time we want to deliver upon. So I will tell you that’s the lens we are using in making these decisions. We also are testing a lot of new fixturing that we think dramatically changes the interior of our warehouses and the customer experience we can create, but also how many units we could place in a warehouse that is closer to the consumers. So I think there is some really cool things and the opportunities we have in our warehouse network that’s I wouldn’t give our the full number right now because frankly it might be more with our smaller boxes and those are things we’re working through, but we are approaching it with a digital lens first, that’s how I will describe it.”

DSW 1Q16 Earnings Call Notes

DSW’s (DSW) CEO Roger Rawlins on Q1 2016 Results

Expense growth has outpaced sales growth

” Over the past several years we have invested heavily in technology, new stores, marketing and support services, while we’ve seen top-line growth from these investments our expense growth has outpaced sales and we haven’t grown our bottom-line. ”

We are still happy with the results we’re getting with new stores

“We are viewing 2017 to be in the net 15 to 20 doors in that range. We are still working on a thought on what it looks like beyond 2017 as it relates to some of the new stores. We have actually been very happy with the results we are getting. We are achieving the ROI targets we had set for the doors we opened in 2015 and obviously so far in 2016.”

We still do believe in new stores

“So we still believe in new stores, I mean I think they create an incredible place for our customer to touch and feel the product, they make our digital platform more competitive and ultimately they create brand awareness. I think we have opportunities to leverage them perhaps differently than we do today to create different and unique experiences”

Thoughts on general environment

“As far as general softness in retail and our belief what is happening. I will tell you everything we see says that traffic in general in the industry was down roughly in the 6%, 7% range for the quarter our traffic was down about 2%, so I feel like we did a lot to drive consumers into our store. I think obviously there are some folks having some success whether it’s the restaurant industry, the services, autos, those kind of folks which ultimately put pressure on our area, the discretionary spending. ”

Mary E. Meixelsperge

Challenging Q1

Thank you, Roger. Q1 was a challenging quarter for DSW. After a strong early start, sales weakened measurably in late March through the balance of the quarter. Total sales increased 3.9%, for $681 million with the 1.6% comparable sales decline compared to last year’s 5.1% comp increase. Comp for the DSW segment decrease 1.4%.

Deborah L. Ferree

DSW 4Q15 Earnings Call Notes

DSW’s (DSW) CEO Roger Rawlins on Q4 2015 Results

New CEO

“I’m excited to be here today, conducting my first call as CEO.”

Mary Meixelspeger

Got promotional to protect market share, sacrificed earnings

“As expected, the fourth quarter was a challenging retail environment. Rather than waiting to take clearance markdowns at the end of the season, we took aggressive action to drive the top line over the holidays, with a focus on growing market share. These actions resulted in a 0.7% comparable sales increase for the fourth quarter, on top of last year’s plus 7.6% comp growth. Our promotional activity allowed us to exit the quarter with clean inventories and acquire new customers, but came at a cost of substantially lower margin and earnings for the quarter. ‘

Disappointed by margin erosion but gained marketing insights

“Gross profit declined by 300 basis points, driven by higher markdowns we took to activate customers and drive traffic. We were disappointed with the margin erosion we experienced this holiday, but we gained new marketing insights that we will apply to drive profitable sales going forward.”

We’re disruptors

“we became one of the largest footwears in the United States because we have a special gene in our DNA. We’re disruptors. We were one of the first to offer a convenient, open selling model for footwear and every day value to our customers and to launch a rewards program, 24 million members strong today.”

rapid evolution demands that we operate at a different pace

“During the fourth quarter, stores fulfilled almost 30% of total digital orders. In order to take full advantage of this, we’re motivating our field and building tools to maximize these omni-channel capabilities when they engage with the customer. Now let’s talk about tempo. The rapid evolution in consumer behavior demands that we operate at a different pace.”

Kids business leads to adult

“And David, I would like to add a little bit more color regarding kids. Obviously, we’re doing it because we want to grab market share within the kids category, but it is also about adult footwear. I mean, we see that when a customer is a part of DSW and engaging with DSW before they have a child, we have a certain market share. Once they find their significant other, we sort of maintain that market share. When that child is born, our market share cuts significantly on the adult side and then when that child leaves the house, we get right back to where we were before they had a child”

Debbie Ferree

We took our eye off the ball

“In hindsight, we were disproportionately focused on organizational and system changes that took our eye off the ball, in terms of providing customers with the products they wanted. This year, we’re putting product back into singular focus.”

Athletic offers the most exciting products

“We will focus on three key initiatives, athletic, women, fashion and kids. First, the athletic and athletic [ph] leisure brands continue to offer some of the most exciting and innovative products in the footwear space. We believe the strength of athletic is part of a lifestyle shift that incorporates the customer’s desire for casual comfort, with sport inspired fashion.”

DSW 4Q14 Earnings Call Notes

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.”

DSW 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Comps turned back positive

“After posting a negative 3.7% comp in Q1 and a tenth of a percent comp in Q2, we rebounded to a plus 2.6% comp in Q3. Our sales performance strengthened across all major footwear categories.”

Strong trend in athletic footwear

“the athletic category was the strongest footwear category in the quarter, hosting the plus 7% comp increase. This was driven by very strong increases in fashion athletic across both genders. We continue to distort our inventories in support of this strong trend.”

West coast port situation being monitored closely

“we are closely monitoring the West Coast port situation. Our higher level of pre-buys gives us some flexibility. But our work stoppage in the West Coast ports would have negative consequences for all U.S. retailers.”

No aberration to weather in the Quarter

“what we saw is that when the weather was cooler than last year, we had nice positive comps and when the weather was warmer than last year, the comps were softer. It was a day-by-day thing. I don’t think for the quarter as a whole, we would attribute any aberration to weather quite honestly.”

Conversions up because customers doing research beforehand

“I think what we’ve seen all year along that customers are doing a lot of pre-shopping online and there that’s one of the reasons, our conversion is up in stores because not just that we are able to get them the wanted products but they’ve done a lot of home work ahead of time.'”

DSW 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Omni and base are one and the same

“Our omni-channel endeavor is really much more than just a project or an initiative. It’s a fundamental change in how DSW conducts business. It’s causing us to view everything we do through the lens of the customer and that is causing us to expand our traditional definitions of our brand cornerstones of assortment and value and convenience. I tell you this because it’s becoming increasingly difficult to isolate the costs and the benefits of omni from our base business.”

Stores are billboards for online

“And I think what we’re learning is we really have to take a holistic view and definition of the sales that are being generated by those new stores because what we see, and that doesn’t even include the impact that our new store in a new market can have on dotcom business, but is generated from those geographies. What we find is it’s a pretty good billboard for the DSW brand and it increases awareness and it typically creates a lift in our dotcom business from customers who live in that vicinity.”

We do well in chase mode

“I think we’ve demonstrated in past quarters that when we’re in a chase mode, we actually do very well. So we’re going to plan our inventories conservatively and we’re going to play the chase game. That’s when we deliver sales at stronger margins.”

Shoe vendors are stressing comfort

“So as we saw at the last two shoe shows, I think comfort has infiltrated every single category. The vendors, smart-fully so, are putting it into dress, sandals, casual shoes. It is pervasive across the industry and frankly that’s what gets me really excited because customers have been asking for it for a long time and I think they’re doing it in a smart way and there are a couple of brands that actually I think are doing it in an exceptional way. “

DSW 1Q14 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Comps decline

“Comparable sales declined by 3.7%. In the DSW segment, which includes DSW stores and DSW.com, comparable sales declined 4%.”

Things got slightly better throughout the quarter, but negative comps throughout

“Within the quarter, there were sequential improvements in our comparable sales performance, but we’ve posted negative comp performance in each of the three months in the quarter.’

It was cold last year, it was colder this year

“We were disappointed with our sales results this quarter. We had expected to post a sales increase given the cold start to spring that we experienced in the prior year.

Unfortunately, weather was even less favorable this year. These conditions created a very competitive pricing environment in the quarter, which is reflected in our margin results.”

Things didn’t recover as rapidly as anticipated

” think what our guidance and our margin performance reflects is the fact that the business didn’t recover as rapidly as we had anticipated.”

Pretty intense pricing pressure

“I think the other thing that we have seen is pretty intense pricing competition, which we’ve obviously reacted to in order to give the same great relative value to the customer, but also to control our inventory.”

Sandals season starting 3-4 months later

“right now is it looks like the sandal business is actually starting three months later than what you would normally position the sandal inventory. So for example you typically think that sandal starts in February as they did last year and as they are doing this year, they are taking a later start like three to four months.”

Super promotional environment

“So I think the promotional activity I would describe it as disruptive, chaotic and really is across the entire industry and I think what you are seeing is business has been tough and I think that most retailers do to address that are just price reducing in a degree that I’ve never ever seen before.”

Can’t chase price down and grow a business

“So we all know that we can’t chase price down and drive a growth business and so what we talked about in the earnings call is that we are going to be very proactive as we are right now.”

Going to have to sit down with vendor partners to make sure we are competitive

“We always have been, but will be even more so sitting with our vendor partners to make sure that we are competitive with everything going on in the industry so that we continue to drive value to the customer, but it’s happening across the industry in every segment.”

We thought we had purchased well, weather working against us, but we lost some bets too

“We believed that this past quarter because it had a very slow start because of the weather, we actually believed that we had bought the right things. We bought core items. We bought trend items. The trend items, the early trend items that we placed our bet on that seem to be the big deals in the industry didn’t play out for us. Example that would be Gladiator, they just didn’t play out.

So we took some bets and we lost those bets. The place that we took bets on our four items fashionable, not fashion directional, those are actually doing very well. So I think this is typical of any quarter where some of the fashion you place your money on, it does work, the weather worked against us, but we do have some bright spots in sandals, but we still haven’t started to see it comp positive yet.”

Appear to be hitting promotional environment head on

“I think what we said is we are going to be increasing to be able to pass additional value to the consumer”

“we are aggressively out in the marketplace to procure additional opportunity buys. We will be pricing those very sharply and I want to stress very sharply.”

We are in chase mode

“So the one thing that we do know is when we are in a chase mode and we operate lean and mean. We deliver results and we don’t take excess markdowns. We will be running our inventory level very wisely and tightly in the back half, so we make sure that we demonstrate that.”

Maybe the weather never turns

“We are in a good chase mode. We have opened to buy liquidity and we don’t wait for maybe the weather never turns.”

Reduced outlook for second half too

“we reduced our expected results both from the second quarter and the second half.”

Omni-channel makes it very difficult for small retailers to compete

“over the last couple of years the top 10 retailers and footwear have grown their market share by several hundred basis points…all the other retailers have had market share losses and I think that what that reflects is the difficulty that smaller less well capitalized, less technologically proficient, regional footwear players that they are going to have very difficult time being competitive in the new way of doing retail and that way is that the customer wants to shop seamlessly from store to the dot com site to the mobile site and she wants to access all the product with — regardless to where it is and she wants help making that decision on what she should buy and once she decides what she is going to buy, she wants it delivered to her wherever she wants it and whenever.”