DSW 2013 Annual Report Download - page 25

Table of Contents
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This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and
uncertainties. Please see “Cautionary Statement” on page 1 for a discussion of the uncertainties, risks and assumptions associated with these statements. You
should read the following discussion in conjunction with our historical consolidated financial statements and the notes thereto appearing elsewhere in this
Annual Report on Form 10-K. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future
periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not
limited to those listed under “Risk Factors” in Item 1A of this Annual Report on Form 10-K and included elsewhere in this Annual Report on Form 10-K.
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During fiscal 2013, we generated a 0.2% increase in comparable sales and a 4.9% increase in total sales. This comparable sales increase is in addition to a
comparable sales increase of 5.5% for the same period last year. The increase in comparable sales was a result of an increase in conversion offset by a
decrease in customer traffic. Currently, we believe the decrease in customer traffic to our stores may be a result of macroeconomic factors influencing customer
behavior, sales transferring to our new stores in existing markets or a shift to pre-shopping on dsw.com and mobile devices. In fiscal 2013, we completed an
unsuccessful test of an expanded luxury assortment online, and our future approach to luxury will depend on our ability to buy products that will allow us to
at least break even.
In fiscal 2013, DSW Inc.'s merchandise margin rate, defined as gross profit excluding occupancy and distribution and fulfillment expenses, a non-GAAP
measure, decreased 50 basis points as a percentage of net sales over fiscal 2012 primarily as a result of inventory adjustments related to our luxury test.
Excluding our luxury test, gross profit as a percentage of net sales increased 10 basis points primarily as a result of improvements in markdown activity in
our base business due to merchandise mix and system improvements such as size optimization.
We have continued making investments in our business that are critical to long-term growth. In fiscal 2013, we invested $83.8 million in capital expenditures
compared to $99.8 million during fiscal 2012. Our capital expenditures during fiscal 2013 were primarily related to opening 30 new stores, store remodels and
business infrastructure. We plan to open approximately 35 stores in fiscal 2014, including six small format stores, and believe we have the potential to operate
500 to 550 stores, which excludes small format stores.
As of February 1, 2014, we operated 394 DSW stores, dsw.com and shoe departments in 262 Stein Mart stores, 93 Gordmans stores and one Frugal Fannie’s
store. In fiscal 2013, we began supplying merchandise to Stein Mart's e-commerce website. DSW has two reportable segments: the DSW segment, which
includes the DSW stores and dsw.com sales channels, and the Affiliated Business Group segment.
Over the past two years, we have taken important steps in our omni-channel strategy with the launch of our shoephoria, charge-send and drop ship
capabilities. Our shoephoria system provides us the ability to fulfill out-of-stock orders placed within our stores out of our fulfillment center. Our charge-send
system allows us to fulfill both online and store orders from all of our DSW store locations. Charge-send is now available in all DSW stores. Our drop ship
capability allows us to sell product online while fulfillment takes place out of our suppliers' warehouse. We now have one vendor that fulfills DSW orders out
of its warehouse, and we plan to increase the number of vendors fulfilling drop ship orders in fiscal 2014.
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Source: DSW Inc., 10-K, March 27, 2014 Powered by Morningstar® Document Research℠
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