DSW Inc. Q2 2010 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Chris Svezia - Susquehanna Financial Group - Analyst : Good morning everyone, and great job. Debbie, a question for you if I may start there. Just on the inventory, one point of clarification, can you just maybe just talk about where either categories or areas of where you've emphasized the inventory, boots or any special buys or things of that nature? Can you just maybe quantify what areas you built up and your comfort level with those inventory levels?

Question: Chris Svezia - Susquehanna Financial Group - Analyst : Morning.

Question: Chris Svezia - Susquehanna Financial Group - Analyst : Okay. Thanks. And then, just it seems like, Mike, going off your observations here, it seems like your business has outperformed most of your peer group and it seems like based on our checks as we've gone through August, it seems like the momentum in your stores continues. I guess September-October is more impactful from a seasonal perspective. What point do you guys look at the business and say okay, I mean we're performing maybe better than we thought? Where's that inflection point? And where do you think, where you can see profit growth or flat earnings in the back half of the year? What kind of comp do you need to do that? That would be helpful.

Question: Chris Svezia - Susquehanna Financial Group - Analyst : Okay. And then any thought about -- thanks, Mike -- any thought about what kind of comp you would need to get to a flat earnings? Or do you just need to see what the merchandise margin rate before you can make that observation?

Question: Chris Svezia - Susquehanna Financial Group - Analyst : Sure. Okay. All right. I'll get back in queue. Thanks, guys. Appreciate it.

Question: Scott Krasik - BB&T Capital Markets - Analyst : Thank you, everybody. Good morning. Can you just dig in a little bit further on your commentary on good boot sales so far this year? We've heard as early as July that boots were selling. So, is it in line with your already high expectations? Is it exceeding your expectations? And what sort of styles, is it broad-based in terms of what's performing for you?

Question: Scott Krasik - BB&T Capital Markets - Analyst :

Question: Scott Krasik - BB&T Capital Markets - Analyst : Okay. And then, just a follow-up on your comment on selective athletic, you've had some of the other off mall retailers report and say that toning is still an important part of the business, but maybe not at the hyper level it was this spring. Is that consistent with what you're seeing as well? And how is that reflected in your inventory?

Question: Scott Krasik - BB&T Capital Markets - Analyst : Excellent. Just one last follow-up to that, in terms of the pricing strategy that you're taking to toning or athletic or wellness, do you feel comfortable focusing on that $100 price range? I know you have some $60 to $80 product in there as well.

Question: Scott Krasik - BB&T Capital Markets - Analyst : Sure. Sure. But are you seeing more success from the Dr. Scholl's or the Avias at $60 to $80 versus the Reebok or Skechers at $100?

Question: Scott Krasik - BB&T Capital Markets - Analyst : All right. That answers my question. Thanks so much.

Question: John Zolidis - Buckingham Research - Analyst : Hi. Good morning.

Question: John Zolidis - Buckingham Research - Analyst : I just wanted to follow up on Chris' earlier question a little bit and try to press you if you can provide us with an answer. What do comps have to be to get to earnings flat year-over-year? Right now, you're saying comps are at a positive low single digit. You're going to see significant merchandise margin erosion on a year-over-year basis due to the higher inventory position going into the back half. Do you need a high single digit comp for earnings to grow in the back half? And then can you also please quantify the marketing dollars that shifted from Q2 into the second half? Thanks.

Question: John Zolidis - Buckingham Research - Analyst : And that $4 million shifted out of 2Q?

Question: John Zolidis - Buckingham Research - Analyst : Okay. Thank you.

Question: David Mann - Johnson Rice & Company - Analyst : Thank you. Good morning. I think last year in the back half you talked about your boots business was comping up or comped up about 40%. Can you just give us a -- can you quantify what your plan is for boots in the second half this year? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: David Mann - Johnson Rice & Company - Analyst : Good morning.

Question: David Mann - Johnson Rice & Company - Analyst : Okay. Great. And then, in terms of the areas of the business where you have implemented size replenishment, can you give us a sense on how those categories have been performing on a comp basis relative to the rest of the assortment?

Question: David Mann - Johnson Rice & Company - Analyst : Great. Thank you.

Question: Patrick Mckeever - MKM Partners LLC - Analyst : Thank you. Good morning, everyone. I'm just wondering about sourcing from China and how much of your product you source directly from China, how much is sourced indirectly? And just generally, how much flexibility you think you have to navigate any forthcoming pricing pressures, that all of us I guess are talking about? Thanks. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Patrick Mckeever - MKM Partners LLC - Analyst : Okay. Very helpful. How much off-price buying are you doing these days versus what you might have done a year ago? And how much flexibility is there in that area to flex that higher?

Question: Patrick Mckeever - MKM Partners LLC - Analyst : Okay. Then just a last quick one, thinking into the back half, what are some other individual categories or styles that you would expect to be strong in the back half of the year, in addition to boots and toning? Thanks.

Question: Patrick Mckeever - MKM Partners LLC - Analyst : Great. Thank you.

Question: Steve Kernkraut - Berman Capital - Analyst : Hello. Congratulations on a great quarter. Mike, I just had a quick question. If you can just describe the pipeline, since some department stores are getting nervous and they're canceling goods, is the pipeline flush with goods that you should be able to buy things in the off-price market? I assume toning and boots are hot, so there's probably not a lot in the pipeline there, but in terms of the other categories, do you have access to goods so that if sales continue to be robust or even just good rather than being robust, that you're able to chase goods?

Question: Steve Kernkraut - Berman Capital - Analyst : Hi, Debbie.

Question: Steve Kernkraut - Berman Capital - Analyst : Okay. Thanks very much.

Question: Heather Boksen - Sidoti & Company - Analyst : Good morning, guys. Maybe ask the inventory question a different way here. But, just curious, when were the fall deliveries last year? And if you exclude the shift in timing of taking them earlier, about how much higher would the inventories be year-over-year?

Question: Heather Boksen - Sidoti & Company - Analyst : Okay. Then just switching gears a little bit. You have about $6 a share in cash on the balance sheet it looks like at the end of the quarter. Now, I realize you might be limited here in what you can do with it, but just curious what the plans are for the cash at this time?

Question: Heather Boksen - Sidoti & Company - Analyst : All right. Thanks.

Question: Chris Svezia - Susquehanna Financial Group - Analyst : So, I have a couple follow-ups here. First, on the product side, with regard to the Men's business, and you're talking about getting -- finally getting Nike, I know it's been an ongoing effort there -- but, obviously that's new business on the Men's side. Can you maybe talk about, if you can, to what you're getting to a degree? I mean is it Shocks, is it Air, is it technical running, is it casual? Just maybe just a little color about what you're getting. And then, secondly on the Men's business, it's performed really well for about a year or so. And I know the size, the replenishment piece is working there as well. But, is that, to what degree is that type of growth sustainable? Or do you start to get into tough comparisons? I'm just trying to understand how the athletic piece plays into it, what you're doing there? And overall in the Men's business, can that continue in terms of the strength in that category? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Chris Svezia - Susquehanna Financial Group - Analyst : Outside of the athletic piece, can the Men's category continue this trajectory of growth or does it become more of a challenge? In other words, there are things that you're doing, either going deeper in select items and changing up the assortment that give you confidence outside of athletic, you can continue to comp on the Men's side?

Question: Chris Svezia - Susquehanna Financial Group - Analyst : Okay. That's good to hear. And then, the last question I have here is just on the dress business, you might have answered this question a little bit earlier but I just want to clarify something. Dress and casual, first just on the dress, are you seeing any meaningful changes year-over-year on the type of product that you're getting, how the customer is responding, pricing, the assortment? And then, just on casual, I know that was a point of de-emphasis last year on the inventory piece as you were chasing boots, casual seems to be pretty strong right now. Any thoughts about how you're thinking about that category? Thanks.

Question: Chris Svezia - Susquehanna Financial Group - Analyst : Okay. Terrific. Thank you and best of luck.

Question: John Zolidis - Buckingham Research - Analyst : Hello. Good morning. A question on the dot-com business, clearly that's growing much faster than the overall business. Can you just give us a sense of the merchandise margins on that? Are those equivalent to the core, or are they, are they better, are they worse, where are they? Can you talk directionally on that? And then, second, with regard to dot-com, is that business big enough now that it's profitable given the infrastructure investment that you had to put in place? And then I have one other question.

Question: John Zolidis - Buckingham Research - Analyst : Okay. Thank you for that answer, and then just -- I don't know if I missed this or not. Did you guys comment you were running in line with that low single digit plan for August, I guess that's the first month of the quarter is through? And then just looking -- toning has been contributing, I think you said 2% to 2.5% in the third quarter and I think it was about 3% in the first quarter. Are you planning a low single digit year-over-year increase in toning? Is that included in your guidance for the second half as well? Thank you very much.

Question: John Zolidis - Buckingham Research - Analyst : Okay. And then toning really got going last year in the fourth quarter. So, that would be a 2% contributor to 3Q and then flattish year-over-year in the 4Q?

Question: John Zolidis - Buckingham Research - Analyst : Okay. And the reason I'm asking is you are giving a low single digit comp plan and it looks like toning could be the whole increase. So, I'm just trying to tease out what you're expecting for the core business.

Question: John Zolidis - Buckingham Research - Analyst : Thanks and good luck for the rest of the season.

Question: Scott Krasik - BB&T Capital Markets - Analyst : Thanks. Doug, housekeeping question, can you give us the gross margins by segment? I know it is going to be in the Q. But --

Question: Scott Krasik - BB&T Capital Markets - Analyst : Correct.

Question: Scott Krasik - BB&T Capital Markets - Analyst : Okay. And then Mike, just a clarification on your door growth comments, did you indicate that there are 50 additional potential locations that weren't in your prior outlook?

Question: Scott Krasik - BB&T Capital Markets - Analyst : Right, so 400 plus that incorporates 50 additional for that?

Question: Scott Krasik - BB&T Capital Markets - Analyst : Then this is -- you ticked up next year as well 10 to 15, that's really just because of the testing in the new markets?

Question: Scott Krasik - BB&T Capital Markets - Analyst : Okay. And just generally speaking, how does the real estate availability look? You had one other off-mall guy, very different type of company from you but -- say that 2011 action looks better at least the back half of the year for potential real estate. Is that opening up for you guys as well? Or are the sites still fairly limited? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Scott Krasik - BB&T Capital Markets - Analyst : That's great. And then just one follow up on those smaller markets, is this still, I don't know what your average store now these days is, 16 to 17,000 square foot box?

Question: Scott Krasik - BB&T Capital Markets - Analyst : Great. All right. Thanks for the color.

Question: David Mann - Johnson Rice & Company - Analyst : Yes. Thank you. Can you elaborate on the performance of remodeled stores? How they're doing relative to the last couple of quarters?

Question: David Mann - Johnson Rice & Company - Analyst : And the plans for additional remodels into next year?

Question: David Mann - Johnson Rice & Company - Analyst : Okay. And then on the lease departments, I think you've talked in the past about trying to get new companies to sign on, can you give us any sense on how that pipeline is coming along?

Question: David Mann - Johnson Rice & Company - Analyst : Thank you.