DSW 2009 Annual Report Download - page 32

• Asset Impairment and Long-lived Assets. We must periodically evaluate the carrying amount of our long-
lived assets, primarily property and equipment, and finite life intangible assets when events and circum-
stances warrant such a review to ascertain if any assets have been impaired. The carrying amount of a long-
lived asset or asset group is considered impaired when the carrying value of the asset or asset group exceeds
the expected future cash flows from the asset. Our reviews are conducted at the lowest identifiable level,
which includes a store. The impairment loss recognized is the excess of the carrying amount of the asset or
asset group over its fair value, based on projected discounted cash flows using a discount rate determined by
management. Any impairment loss realized is generally included in cost of sales. We believe as of
January 30, 2010 that the long-lived assets’ carrying amounts and useful lives are appropriate. We do
not believe that there will be material changes in the estimates or assumptions we use to calculate asset
impairments. To the extent these future projections or our strategies change, the conclusion regarding
impairment may differ from our current estimates.
• Self-insurance Reserves. We record estimates for certain health and welfare, workers’ compensation and
casualty insurance costs that are self-insured programs. Self-insurance reserves include actuarial estimates
of both claims filed, carried at their expected ultimate settlement value, and claims incurred but not yet
reported. Our liability represents an estimate of the ultimate cost of claims incurred as of the balance sheet
date. Health and welfare estimates are calculated utilizing claims development estimates based on historical
experience and other factors. Workers’ compensation and general liability insurance estimates are calculated
utilizing claims development estimates based on historical experience and other factors. We have purchased
stop loss insurance to limit our exposure to any significant exposure on a per person basis for health and
welfare and on a per claim basis for workers’ compensation and casualty insurance. Although we do not
anticipate the amounts ultimately paid will differ significantly from our estimates, self-insurance reserves
could be affected if future claim experience differs significantly from the historical trends and the actuarial
assumptions. For example, for workers’ compensation and liability future claims estimates, a 1% increase or
decrease to the assumptions for claims costs and loss development factors would increase or decrease our
self-insurance accrual by approximately $0.1 million.
• Customer Loyalty Program. We maintain a customer loyalty program for the DSW stores and dsw.com in
which program members earn reward certificates that result in discounts on future purchases. Upon reaching
the target-earned threshold, the members receive reward certificates for these discounts which expire six
months after being issued. We accrue the anticipated redemptions of the discount earned at the time of the
initial purchase. To estimate these costs, we are required to make assumptions related to customer purchase
levels and redemption rates based on historical experience.
• Income Taxes. We are required to determine the aggregate amount of income tax expense to accrue and the
amount which will be currently payable based upon tax statutes of each jurisdiction we do business in. In
making these estimates, we adjust income based on a determination of generally accepted accounting
principles for items that are treated differently by the applicable taxing authorities. Deferred tax assets and
liabilities, as a result of these differences, are reflected on our balance sheet for temporary differences that
will reverse in subsequent years. A valuation allowance is established against deferred tax assets when it is
more likely than not that some or all of the deferred tax assets will not be realized. If our management had
made these determinations on a different basis, our tax expense, assets and liabilities could be different.
Results of Operations
Overview
Total net sales in fiscal 2009 increased 9.5% due to positive comparable store sales of 3.2%, new DSW stores
and increased dsw.com sales. Positive comparable store sales were driven by an increase in traffic and average unit
retail resulting from a strong performance in the women’s and accessories categories. Gross profit as a percentage of
net sales for fiscal 2009 improved 330 basis points compared to fiscal 2008. Operating expenses as a percentage of
net sales increased 40 basis points for the same period driven by an increase in bonus expense resulting from
improved operating results.
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