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DSW Bets on Athletic Footwear to Drive Growth After Tepid Q2

After a less-than-stellar start to the year, DSW ended its second quarter on a mixed note, with shares of the company down more than 9.5% during Tuesday morning trading.

While there was surely good news to celebrate—DSW’s adjusted earnings of 35 cents per share beat analysts’ projected 30 cents per share, while sales jumped 5.1% year-over-year—there were no ignoring signs that the footwear retailer still has its work cut out for it.

Net earnings fell by a third during its latest quarter, down to $25 million (30 cents per share) compared to $37.6 million (42 cents per share) during the same period last year. Furthermore, same-store sales were still largely underwhelming, down 1.2% in the latest quarter. The company announced last week the opening of 21 new stores slated for fall.

DSW said it has finished a restructuring which will save the company $25 million in 2017, resulting from an “organization realignment and improvements in procurement and other business processes.” There was no mention if this included job cuts or store closures.

DSW CEO Roger Rawlins was cautiously optimistic in a statement to investors, “We are on track to deliver our outlook for the full year and we’ve made progress on a number of initiatives to drive sales and improve our financial trajectory,” he said. “We are committed to getting back to sustained earnings growth while planting the seeds for long-term success.”

To its credit, DSW has been more proactive than many retailers in responding to consumer trends. The company is investing in technology that makes shopping for shoes in-store easier, as well as revamping its online business. DSW also recently expanded its kids business, although its impact will not largely be felt until the company’s next quarter.

Rawlins said he was “satisfied” with the expansion of DSW Kids during the company’s earning call, and also noted women’s and men’s athletic shoes helped drive growth, saying that athletic would be “critical” to expanding its kids’ assortment.

Debbie Ferrée, DSW chief marketing officer and vice chairman, noted that sales of sandals were sluggish for summer, which looks to be impacting its seasonal buys for fall. The retailer is ordering fewer boots while sticking to more transitional styles of footwear that are less susceptible to weather fluctuations.

DSW reaffirmed its full-year earnings forecast, saying it expects EPS in the range of $1.32-$1.42.