DSW 2013 Annual Report Download - page 28

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Table of Contents
For the DSW segment, gross profit decreased 90 basis points primarily as a result of inventory adjustments related to our luxury test. Excluding the impact of
the luxury test, gross profit as a percentage of net sales increased 10 basis points as a result of an improvement in merchandise margin, partially offset by a
deleverage of occupancy expenses. Merchandise margin for the DSW segment increased as a percentage of net sales to 45.3% for fiscal 2013 from 44.8% for
fiscal 2012 as a result of a reduction in markdown activity. Distribution and fulfillment expenses as a percentage of net sales remained flat at 2.0% for fiscal
2013 compared to fiscal 2012.
Gross profit for our Affiliated Business Group segment decreased 40 basis points for fiscal 2013 primarily as a result of the Loehmann's bankruptcy and
subsequent reserve for the liquidation of DSW inventory.
Operating Expenses. Operating expenses as a percentage of net sales were 21.0% and 21.3% for fiscal 2013 and fiscal 2012, respectively. Excluding the
impact of the settlement of the pension plan assumed in the merger with RVI of $14.7 million in fiscal 2013, operating expenses as a percentage of net sales
were 20.4% in fiscal 2013. In the fourth quarter of fiscal 2012, we increased our estimate of a lease impairment in a lease assumed in the Merger with RVI by
$6.0 million based on our expectation of reduced future sublease income and an expected increase in real estate taxes. This increase was partially offset by our
receipt of a court approved award of damages of $5.3 million from our insurance carrier for a denied claim related to the 2005 data theft, partially offset by
related expense of $1.3 million. Excluding the impact of the award of damages and other RVI operating expenses noted above, operating expenses as a
percentage of net sales was 21.2% for fiscal 2012. This 80 basis point decrease as a percentage of net sales over fiscal 2012 was primarily the result of a
reduction in pre-opening expenses and a leverage of home office overhead.
Change in Fair Value of Derivatives. During fiscal 2012, we recorded a non-cash charge of $6.1 million related to the change in fair value of warrants,
which were exercised and settled in the first half of fiscal 2012.
Interest Income (Expense), Net. In the third quarter of fiscal 2012, we received interest of $1.9 million related to the award of damages from our insurance
carrier. Excluding the impact of the interest related to the award, interest income, net was relatively flat for fiscal 2013 compared to fiscal 2012.
Income Taxes. Our effective tax rate for fiscal 2013 was 38.0% compared to 39.7% for fiscal 2012. The effective tax rate of 38.0% for fiscal 2013 reflects the
impact of federal, state and local taxes. The effective tax rate of 39.7% for fiscal 2012 reflects the impact of federal, state and local taxes and the change in fair
value of the warrants, which are included for book income but not in tax income.
Income (Loss) from Discontinued Operations. During fiscal 2013, there was no income from discontinued operations. During fiscal 2012, income from
discontinued operations, net of tax, was due to reduction in our best estimate of liability under lease guarantees for Filene's Basement.
 
Net Sales. Net sales for fiscal 2012increased by 11.5% from fiscal 2011. The following table summarizes the increase in our net sales:
Fiscal year ended
February 2, 2013
(in millions)
Net sales for the fiscal year ended January 28, 2012 $2,024.3
Increase in comparable sales for the 52 weeks ended January 26, 2013 105.9
Net increase from non-comparable and closed store sales and 53rd week 127.6
Net sales for the fiscal year ended February 2, 2013 $2,257.8
24
Source: DSW Inc., 10-K, March 27, 2014 Powered by Morningstar® Document Research℠
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