DSW 2010 Annual Report Download - page 32

The following table summarizes our comparable store sales change by reportable segment and in total:
Fiscal Year Ended
January 29, 2011
DSW .......................................................... 14.0%
Leased departments................................................ 4.6%
Total DSW Inc. .................................................. 13.2%
Beginning in fiscal 2010, dsw.com is included in the change in comparable sales. The increase in comparable
sales was primarily a result of an increase in transactions driven by more customers visiting our stores and dsw.com,
and a higher percentage of those customers making a purchase. For the DSW segment, all merchandise categories
had positive comparable sales. DSW segment comparable sales increased in women’s footwear by 15.0%, men’s by
13.1%, athletic by 9.8% and accessories by 18.9%.
Gross Profit. Gross profit is defined as net sales less cost of sales. Gross profit increased as a percentage of
net sales from 29.2% in fiscal 2009 to 31.0% in fiscal 2010. By segment and in total, gross profit as a percentage of
net sales was:
January 29,
2011
January 30,
2010
For the Fiscal Years Ended
DSW .................................................... 31.9% 30.2%
Leased departments ......................................... 21.4% 19.1%
Total DSW Inc. ............................................ 31.0% 29.2%
DSW segment merchandise margin, gross profit excluding occupancy and warehousing expenses, a non-
GAAP measure, was 44.7% as a percentage of net sales for both fiscal 2010 and 2009. Sales volume exceeded our
expectations during the spring season of fiscal 2010, which resulted in a reduction of markdown activity and
improved merchandise margins. This improvement was offset in the fall season due to a challenging comparison
against record merchandise margin rates in the comparable period. The reduction in the fall season margin rate was
expected as a result of our inventory being positioned to achieve double digit comparable sales growth. Store
occupancy expense for the DSW segment decreased as a percentage of net sales to 11.1% for fiscal 2010 from
12.9% for last year primarily as a result of increased average store sales and decreased in dollars as a result of
expense saving initiatives.
Gross profit for the leased department segment increased as a percentage of net sales for fiscal 2010 due to a
reduction in markdown activity due to continued enhancements to the clearance markdown process and aligning our
inventory position to sales demand.
Operating Expenses. Operating expenses as a percentage of net sales were 21.5% and 23.4% for fiscal 2010
and fiscal 2009, respectively. We increased our marketing expenses to drive sales and have continued investing in
our infrastructure resulting in additional depreciation expense. Even with those increases, operating expenses for
the year leveraged as a result of the sales increase compared to last year and a reduction in total overhead expenses
driven by expense savings initiatives.
Interest Income, Net. Interest income, net of interest expense, was 0.1% as a percentage of net sales for both
fiscal 2010 and 2009. The increase in interest income was primarily a result of the reversals of interest reserves
related to uncertain tax positions which were released during fiscal 2010.
Non-operating Income (Expense), Net. Non-operating income, net of non-operating expense, for fiscal 2010
resulted from a gain on the sale of a fully impaired auction rate security which was sold during fiscal 2010. Non-
operating expense for fiscal 2009 resulted from other-than-temporary impairments related to auction rate securities
partially offset by realized gains related to the sale of preferred shares.
Income Taxes. Our effective tax rate for fiscal 2010 was 39.3%, compared to 40.4% for fiscal 2009. The
reduction in the effective tax rate was primarily due to a reduction of a valuation allowance on our fully impaired
auction rate security which was sold during fiscal 2010.
28