Dsw Inc Q2 2011 Earnings Conference Call Summary

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 on the quarter. So I guess I -- you guys sound really good, as usual and I know there is always the concerns about the backdrop. I guess I am just curious -- I mean you guys are not -- and I know you didn't give any intraquarter view, but I mean it is really basically taking a very conservative view on the back half with regard to your sort of comp forecasts, your sort of margin outlook and I am just curious, given where inventories are, I mean you guys aren't really LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. seeing anything at this point or you're just taking a very conservative approach to the back half at this point. Is that just sort of how we are taking it? And obviously the flexibility to chase business if necessary. Is that fair?

Question: Chris Svezia - Susquehanna Financial Group - Analyst : And I guess either Doug or Debbie, how do you guys feel about the product. I guess input costs I think before was low to mid single-digit increases. I think you felt pretty good about mitigating some of the costs Q3. Still uncertain about Q4 and I think you are hopeful that if you have product margins kind of flat, that would be great. I mean how are you thinking about it at this juncture?

Question: Chris Svezia - Susquehanna Financial Group - Analyst : Okay. Last question I have here and then I will jump off. But just on the sequential (technical difficulty), was that just all related to the PIES? I think there is like $134 million that is PIE related. What about the short-term piece that is like $69 million? What

Question: Chris Svezia - Susquehanna Financial Group - Analyst : No, I guess let me just reiterate real quick. Specifically on the balance sheet, the debt that is on the balance sheet, can you just tell us what that (technical difficulty)?

Question: Chris Svezia - Susquehanna Financial Group - Analyst : And does all of that go away?

Question: Chris Svezia - Susquehanna Financial Group - Analyst : All right, thank you.

Question: Jeff Black - Citigroup - Analyst : Yes, just a couple of questions related to inventory, I guess, Doug. What is the unit position here? I assume some of the increase in inventory is due to cost. How much? And then Debbie, on the boots, what are you seeing so far? What kind of season do we really expect? Is there enough fashion? Do we think we have enough fashion to take up price? And finally back to Doug, on the DC fulfillment stuff that is weighing gross margin a little bit, does that hit increase as we enter the back half, stay the same? What is going on there? 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: Jeff Black - Citigroup - Analyst : Okay, thanks. Good luck.

Question: Steve Marotta - CL King - Analyst : Good morning, everybody. Regarding the flat inventory per square foot, was there any delivery delays that may have skewed that a bit? In other words, did you take additional deliveries in early August that may have then resulted in smaller increases on a per square foot basis for inventory?

Question: Steve Marotta - CL King - Analyst : Can you quantify that at all how say inventory per square foot is roughly? Now I know you're reticent to speak intraquarter, but is there any way to quantify that?

Question: Steve Marotta - CL King - Analyst : Okay. And then as it relates -- again, I understand reticence on speaking intraquarter, as it relates to Irene, can you speak about number of stores impacted, days open impacted, is there -- is it enough to trigger business interruption insurance? Can you just speak about the storm a bit?

Question: Steve Marotta - CL King - Analyst : Great. That is very helpful. Thank you very much.

Question: Claire Gallacher - Capstone Investments - Analyst : Great, thank you. I was curious about what drove the comps during the quarter. Can you talk maybe traffic versus maybe AUR and kind of the breakdown that you saw in Q2?

Question: Claire Gallacher - Capstone Investments - Analyst : Okay, great. And then just kind of a follow-up on the comp, were there any specific products, maybe sandals or boots or for the fashion component of women's, whatever it is, what helps to get you to that 12% level when you were originally planning

Question: Claire Gallacher - Capstone Investments - Analyst : Okay, great. And then my last question really has to do with just kind of the SG&A spend. Could you remind us what you are investing in for the second half of the year just to kind of -- the SG&A -- the leverage that you are expecting? Could you just kind of walk us through that?

Question: Claire Gallacher - Capstone Investments - Analyst : Okay, great. That's very helpful. Thanks so much.

Question: Jeff Van Sinderen - B. Riley - Analyst : Good morning. And let me add my congratulations as well. Any sense you can give us on the monthly sales progression? I know you guys don't really break that out, but just any sense of how the sales kind of trended throughout the quarter? And then also any sense you can give us on the sales progression over the last six weeks? I know you are not necessarily all a

Question: Jeff Van Sinderen - B. Riley - Analyst : Got it. And then any color you can give us on what you're hearing on off-mall traffic maybe versus what you are hearing on mall traffic? Is there anything to glean from that? 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: Jeff Van Sinderen - B. Riley - Analyst : Got it. Okay. And then anything more you can say on the small store format tests so far? Anything to update there?

Question: Jeff Van Sinderen - B. Riley - Analyst : Okay, fair enough. I think that is pretty much what I had. Thanks very much and good luck for this quarter.

Question: Scott Krasik - BB&T Capital Markets - Analyst : Good morning, everyone. Congratulations. Start with big picture, Doug or Mike. If you guys are able to exceed your comp outlook for the back half of this year, regarding our models, is this something that we should just sort of ignore the two-year trend, the stack that we look at and just say, look, DSW is in a new phase in terms of the ability to convert customers and take

Question: Scott Krasik - BB&T Capital Markets - Analyst : And my question really didn't have to do with much with the next six months as the next couple of years going forward, but Debbie, how -- are you so confident in your ability to chase inventory if your comps are running better than plan to model the inventory flat or is that more a function of nervousness about the economy and potential decline in traffic? Maybe talk about your decision to come at this fall with flat to up slightly inventory?

Question: Scott Krasik - BB&T Capital Markets - Analyst : And Debbie, have you anniversaried the impact from the technical Nike that you brought in? I think it was last spring. So I think you are passed that. Are there any other introductions on the athletic side that could boost the numbers?

Question: Scott Krasik - BB&T Capital Markets - Analyst : Nice, okay. And then just lastly, Doug, on the balance sheet, I think we are clear now that the pieces of the debt will go away this year. Are there any portions of the cash, either in short term or in long term, that would -- that are RVI-related for some reason that would go away or is that how we should look at the cash for year-end?

Question: Scott Krasik - BB&T Capital Markets - Analyst : So the 410 or whatever the number was including the long term, that is a number to count on as we go forward as well?

Question: Scott Krasik - BB&T Capital Markets - Analyst : Okay, that's great. Thanks, gentlemen and Debbie.

Question: David Mann - Johnson Rice & Co. - Analyst : Thank you, good morning. Great job on the quarter. A couple of questions. On the dotcom business, can you elaborate on how that benefited that 13% comp and also did the rate of growth in dotcom accelerate in the second quarter?

Question: David Mann - Johnson Rice & Co. - Analyst : And the growth rate in the first half of the year, how would that have compared to the growth in dotcom last year?

Question: David Mann - Johnson Rice & Co. - Analyst : Very good. In terms of the accessory success you had in the men's business since you've called out both of those categories, can you talk about -- I don't know if it is Debbie or Mike -- can you talk about your ability to continue to grow those specific categories? Where are you in terms of expanding the inventories or some of the other initiatives there?

Question: David Mann - Johnson Rice & Co. - Analyst : And on the men's side, is there still a lot of growth there?

Question: David Mann - Johnson Rice & Co. - Analyst : And then, Mike, one question on the use of cash. Obviously, you made the decision not to use the cash to retire the PIES and you talked about perhaps some future uses of the cash for growth options. Can you just talk about so investors can appreciate? Should we expect the cash to be kept defensively over the near term or would you potentially deploy it whether towards some growth initiatives or anything else in some short order over the next couple of quarters?

Question: David Mann - Johnson Rice & Co. - Analyst : Very good, thank you.

Question: Mark Montagna - Avondale Partners - Analyst : Hi, I have a question about your Leased divisions. I know that it was an initiative that you're focused on. I am wondering if your systems are fully capable of taking on new clients, do you have enough DC space, do you have enough land to expand onto? And is your -- do you have the website capability to service these clients if they happen to want to be on the Web because really kind of imagining that at some point over the next 12 months, we would perhaps see some sort of announcements related to this?

Question: Mark Montagna - Avondale Partners - Analyst : So do you feel you will have the capabilities at some point in 2012 to bring somebody else on?

Question: Mark Montagna - Avondale Partners - Analyst : Okay. Can I narrow that down? Do you think it is closer to the beginning of the year or middle of the year or hard to tell at this point?

Question: Mark Montagna - Avondale Partners - Analyst : All right. Well, good luck with the effort. Thank you.

Question: Patrick McKeever - MKM Research - Analyst : Thank you. Just wondering what is embedded in your gross margin guidance for the back half of the year from a merchandise margin standpoint. I mean I am assuming you are expecting merchandise margins to be down in the back half, but can you quantify it and even give us some color by quarter how that might look?

Question: Patrick McKeever - MKM Research - Analyst : And then in the second quarter, with a 60 basis point improvement in merchandise margin, what were the key pieces of that?

Question: Patrick McKeever - MKM Research - Analyst : Sure. No, it does. But I guess why haven't you seen more cost pressure on merchandise margin? It seems as if most footwear retailers have seen a fair bit of cost pressure, but it seems more -- for DSW, this is -- if we see it at all -- well, I'm guessing we will -- but it is going to be more of a second-half type of event. I mean how do you -- what are the key differences there?

Question: Patrick McKeever - MKM Research - Analyst : Got it. And then just a quick one. I think you had talked about doing some dedicated advertising marketing in men's. I am wondering if you have started that or if that is something that we will see in the fall season? 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 Research - Analyst : Sounds great. Thank you very much.

Question: Chris Svezia - Susquehanna Financial Group - Analyst : Just two quick follow-ups. I guess first just on your clearance inventory just given where your overall inventories are, can you just give us some sense of where that stands right now? And second question, just related to the size of replenishment, I know that kind of goes live shortly to benefit certainly next year and fourth quarter. Just give a sense of where you are on that and when you expect to kind of start to go live on that? Is that late fourth quarter or is that more of first quarter next year?

Question: Chris Svezia - Susquehanna Financial Group - Analyst : Yes, sorry.

Question: Chris Svezia - Susquehanna Financial Group - Analyst : Okay, all right. Thank you very much. I appreciate it.

Question: Steve Marotta - CL King - Analyst : Thank you for taking my follow-up. Doug, did I understand earlier you said that historically September volumes are 50% higher than August?

Question: Steve Marotta - CL King - Analyst : Okay. And then could you parse that one more derivative down on the weekend before Labor Day? I know that you guys are not a back-to-school business, so I am assuming that in the grand scheme of things, one weekend late in a small month is not material to the quarter or is relatively not material to the quarter?

Question: Steve Marotta - CL King - Analyst : I understand, of course, of course. Okay. Can you drill down anymore there or do you feel comfortable doing that?

Question: Steve Marotta - CL King - Analyst : Which spills over to October, which means that both months are relatively similar historically in volumes, hence Septober? 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: Steve Marotta - CL King - Analyst : Got you. That's very helpful. Thank you.

Question: Scott Krasik - BB&T Capital Markets - Analyst : Thanks. Debbie, remind us what percent of sales boots are roughly in Q3, Q4?

Question: Scott Krasik - BB&T Capital Markets - Analyst : Okay. And then in terms of your latest thinking around boots, you are still thinking that they are going to be up year-over-year?

Question: Scott Krasik - BB&T Capital Markets - Analyst : Okay. And then is there -- I know, Mike, there was an inventory investment around size replenishment. Is there some type of investment you need for optimization or you just move the parts around?

Question: Scott Krasik - BB&T Capital Markets - Analyst : Okay, great. And then any -- (multiple speakers) 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 : Inventory.

Question: Scott Krasik - BB&T Capital Markets - Analyst : Okay. And then in terms of full planning and allocation, color, size, style, any of the above, that's still going to be implemented in 2012?

Question: Scott Krasik - BB&T Capital Markets - Analyst : Okay, thanks, guys.