DSW 2008 Annual Report Download - page 34

pr
i
nc
i
p
l
es
f
or
i
tems t
h
at are treate
d diff
erent
l
y
b
yt
h
e app
li
ca
bl
e tax
i
ng aut
h
or
i
t
i
es. De
f
erre
d
tax assets an
d
liabilities, as a result of these differences, are reflected on our balance sheet for temporar
y
differences tha
t
will reverse in subsequent years. A valuation allowance is established against deferred tax assets when it i
s
m
ore
lik
e
l
yt
h
an not t
h
at some or a
ll
o
f
t
h
e
d
e
f
erre
d
tax assets w
ill
not
b
e rea
li
ze
d
.I
f
our management
h
a
d
m
ade these determinations on a different basis, our tax ex
p
ense, assets and liabilities could be different
.
Results of Operation
s
O
vervie
w
I
n fiscal 2008, a difficult economic environment created many challenges for our business. Traffic continued t
o
deteriorate throughout the year resulting in negative comparable sales of
5
.9%. Despite these challenges, w
e
i
ncrease
d
net sa
l
es 4.1% t
h
rou
gh
new stores an
d
t
h
e
l
aunc
h
o
fd
sw.com an
di
ncrease
d
our s
h
are o
f
t
h
ea
d
u
l
t
footwear market. Dsw.com contributed to our increase in net sales allowin
g
us to increase market share and expand
our DSW Rewards program. In order to align our business with the difficult economic environment, we focused on
m
anag
i
ng
i
nventory to m
i
n
i
m
i
ze mar
kd
owns an
d
preserve our merc
h
an
di
se marg
i
ns. However, store occupancy an
d
distribution expense offset these efforts due to decreased avera
g
e store sales resultin
g
in a 40 basis point decrease i
n
g
ross profit for fiscal 2008
.
O
perating expenses increased in fiscal 2008. Depreciation expense related to investments in our infrastructure,
d
sw.com an
d
new stores contr
ib
ute
d
to t
h
e
i
ncrease
i
n operat
i
n
g
expenses. A
l
so, we expecte
d
to prov
id
e serv
i
ces t
o
V
alue Cit
y
, but their financial difficulties ended in bankruptc
y
resultin
g
in expenses we were unable to allocate. T
o
offset a
p
ortion of these ex
p
enses, we com
p
leted a workforce reduction in the fourth
q
uarter of 2008.
Even in these difficult economic times, we continued to make significant investments in our business that are
c
r
i
t
i
ca
l
to our
l
on
g
-term
g
rowt
h
, suc
h
as
i
n
f
ormat
i
on tec
h
no
l
o
gy
up
g
ra
d
es,
i
nvestments
i
n
d
sw.com an
d
open
i
n
g
n
ew stores. In
fi
sca
l
2008, we o
p
ene
d
41 new DSW stores an
dl
aunc
h
e
dd
sw.com. Our cas
h
an
di
nvestment
b
a
l
ance
i
ncreased $13.1 million to $157.5 million in fiscal 2008. As we enter into fiscal 2009, we
p
lan to focus on sale
s
growt
h
t
h
roug
hd
sw.com, preserv
i
ng our
li
qu
idi
ty an
d
strengt
h
en
i
ng our
b
a
l
ance s
h
eet.
As of Januar
y
31, 2009, we operated 298 DSW stores, dsw.com and leased departments in 275 Stein Mart
s
tores, 65 Gordmans stores, 36 Filene’s Basement stores and one Fru
g
al Fannie’s store. We mana
g
e our operations
i
n three operating segments, defined as DSW stores, dsw.com, and leased departments. DSW stores and dsw.com
are a
gg
re
g
ate
d
an
d
presente
d
as one reporta
bl
ese
g
ment, t
h
e DSW se
g
ment.
Th
e
f
o
ll
ow
i
n
g
ta
bl
e represents se
l
ecte
d
components o
f
our
hi
stor
i
ca
l
conso
lid
ate
d
resu
l
ts o
f
operat
i
ons
,
e
xpressed as percenta
g
es of net sales:
Januar
y31
,
2009
(
52 Weeks
)
F
ebruar
y2,
2008
(
52 Weeks
)
F
ebruar
y3
,
200
7
(
53 Weeks
)
F
o
rth
e
F
isca
lY
ea
rEn
ded
N
et sales
.......................................
100.0% 100.0% 100.0%
C
ost of sale
s
....................................
(
7
4
.
1) (
7
3
.7
)(
7
1
.
4)
Gross
p
ro
fit
.....................................
2
5.
9
26.3 28.
6
O
perat
i
n
g
expenses
................................
(
23.0
)(
20.5
)(
20.7
)
O
peratin
g
profit .
.
.
............................... 2.9
5
.8 7.9
I
nterest income, net
.
............................ 0.2 0.4 0.
5
O
ther-than-temporar
y
impairment char
g
e on investment
s
....
(0
.
1)
Earn
i
n
g
s
b
e
f
ore
i
ncome taxes
.
.......................
3
.
06
.2
8
.4
I
ncome tax prov
i
s
i
o
n
..............................
(
1.2
)(
2.4
)(
3.3
)
Net incom
e
....................................
.
1.
8
%
3
.
8
%
5
.1%
30