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DSW’s omnichannel efforts pressure profits

Fundamental changes in the way DSW serves its footwear customers in an omnichannel world will put significant pressure on profits during the second half of the year, according to president and CEO Mike MacDonald.

The leading retailer of branded footwear and accessories with 410 stores said sales for its second quarter increased 4.5% to $587 million and same store sales advanced 0.8% on top of a prior year increase of 4.4%. Profits increased to $34.3 million, or 38 cents a share, compared to prior year profits of $33.7 million, or 37 cents a share.

According to MacDonald, the company accomplished its goal of achieving improvement in the underlying sales trends and eliminating inventory imbalances during the quarter, with all major categories showing improvement from the first quarter.

“In addition, we were encouraged by the sequential improvement in sales trends as the quarter progressed. The actions we took to balance inventories created margin pressure but inventories at the end of the quarter were current and below the prior year on a cost per square foot basis,” MacDonald said. “We continued to make progress in our omnichannel initiative. The changes we are making are fundamental to the way we serve our customers. They will enable DSW to respond to the rapidly changing customer shopping patterns and maintain our position of strength in the footwear industry.”

Although MacDonald didn’t provide details on specific omnichannel strategies when the company announced second quarter results, he did note that the company’s full year profitability will be negatively affected by omnichannel expenses and expectations of flat same store sales growth. Omnichannel related expenses are expected to total $10 million or roughly seven cents a share, according to the company.

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