DSW 2011 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 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” and included elsewhere in this Annual Report on Form 10-K.
Executive Summary - Fiscal 2011
During fiscal 2011 , we generated a 8.3% increase in comparable sales and a 11.1%
increase in total sales. The increase in comparable sales was
driven by
an increase in transactions and units per transaction, as more customers visited our stores and dsw.com, and those customers purchased more
items per transaction. All merchandise categories reported strong performance, with no single category driving the overall sales increase.
In fiscal 2011 , DSW Inc.’
s gross profit rate improved 130 basis points over the prior year driven by an increase in initial markup and a reduction
in markdown activity in our DSW segment as well as leveraging our occupancy rate. The increase in initial markup is due to cost mitigation with our
vendors and selective price increases. Although we experienced cost increases from our product sources in China in the second half of fiscal 2011, our
supply chain and merchandising initiatives mitigated some of these cost increases. The reduction in markdown activity was the result of the
composition and mix of sales.
In the second quarter of fiscal 2011, we completed our merger with our former parent, RVI. Throughout fiscal 2011, the consolidated company
incurred $17.3 million in transaction costs related to the Merger and other RVI related expenses. DSW also assumed all of RVI’
s obligations including
the PIES and warrants. In fiscal 2011, the Company incurred a non-cash charge of $53.9 million
related to the change in fair value of the derivative
instruments, PIES and warrants, compared to a non-cash charge of $49.0 million related to the change in fair value of derivative instruments in
fiscal
2010 . DSW settled the obligations under the PIES with the issuance of 3.8 million
Class A Common Shares in the third quarter of fiscal 2011. The
warrants expire in June 2012.
We have continued making investments in our business that are critical to long-term growth. During fiscal 2011 , we invested $76.9 million
in
capital expenditures compared to $52.3 million during fiscal 2010
. Our capital expenditures were primarily related to opening new stores, remodeling
existing stores and improving our information technology and business infrastructure. As of January 28, 2012 , our cash and short-
term investments
balance was $375.7 million . We had $53.9 million in long-term investments and had no long-term debt.
As of January 28, 2012 , we operated 326 DSW stores, dsw.com and leased departments in 261 Stein Mart stores, 74 Gordmans stores and
one
Frugal Fannie’
s store. DSW has two reportable segments: the DSW segment, which includes the DSW stores and dsw.com sales channels, and the
leased business division segment.
Results of Operations
The following table represents selected components of our historical consolidated results of operations, expressed as percentages of net sales:
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.