DSW 2014 Annual Report Download - page 24

Table of Contents
 
This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve various risks
and uncertainties. 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.

Over the past few years, we have taken important steps in positioning ourselves as an omni-channel retailer through the launch of our shoephoria, ship from
store and drop ship capabilities. Our shoephoria system provides us the ability to fulfill out-of-stock demand from our stores out of product in our fulfillment
center. Our ship from store system allows us to fulfill both online and store orders from all of our DSW store locations. Our drop ship capability allows us to
sell product online that is fulfilled out of our suppliers' warehouse. We plan to increase the number of vendors fulfilling drop ship orders in fiscal 2015. We
believe customers demand that retailers conform their business to the way that customers want to shop. We aligned our business operations in an omni-
channel structure with improved inventory visibility across the DSW segment. We continue to add technologies to provide a relevant shopping experience to
our customers and continue to improve our operational execution with new systems. In fiscal 2014, we implemented our new assortment planning system,
which allows us to allocate our products more precisely by location based on customer preferences, and expect to derive merchandise margin benefits from
this system beginning in fiscal 2016.
In 2014, we took steps to align our business operations to better respond to customer needs. These changes required increased clearance volume and
markdown activity that enabled DSW to achieve better inventory alignment at the beginning of the fall season. We have also made it easier for customers to
interact with DSW with a number of digital enhancements in 2014. We made free shipping easier online, added Paypal as a secure payment option and
introduced a mobile app. We also made it easier to earn Rewards certificates through a new co-branded credit card that allows DSW Rewards members to earn
points for purchases made at DSW, as well as outside of DSW. We selectively sharpened price points and increased opportunistic buys to deliver our value
proposition to our customer and are managing our assortment to reflect the shifts in customer lifestyles. We increased our investment in marketing to deliver
comprehensive messages regarding DSW's assortment and value.
In addition to our customer initiatives, we implemented several strategic initiatives outside of our core business. ABG began to operate Yellow Box retail
stores in premier shopping destinations. We made an equity investment in Town Shoes, the leading branded footwear retailer in Canada, which provides a
foundation to expand our operations to Canada with an established team that possesses the local expertise.

During fiscal 2014, we generated a 1.8% increase in comparable sales and a 5.4% increase in total sales. This increase compares to a comparable sales
increase of 0.2% for fiscal 2013. The increase in comparable sales was a result of increases in customer traffic.
In fiscal 2014, DSW Inc.'s merchandise margin rate, defined as gross profit excluding occupancy and distribution and fulfillment expenses, a non-GAAP
measure, decreased as a percentage of net sales over fiscal 2013 primarily as a result of spring markdown activity, higher shipping costs and lower initial
markups.
Reported net income was $153.3 million, or $1.69 per diluted share, an increase of 2.4% over last year's reported earnings per share of $1.65 per diluted share.
Last year's reported earnings per share includes $0.23 per share in charges related to RVI and the Company's luxury test.
We have continued making investments in our business that are critical to long-term growth. In fiscal 2014, we invested $93.3 million in capital expenditures
compared to $83.8 million during fiscal 2013. Our capital expenditures during fiscal 2014 were primarily related to opening 37 new stores, store remodels
and business infrastructure. We plan to open approximately 35 stores
20
Source: DSW Inc., 10-K, March 26, 2015 Powered by Morningstar® Document Research℠
The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.