DSW Inc. (DSW) is trading at a new 52-week high today. In case you're not familiar, DSW is a footwear and accessories retailer. DSW offers a wide selection of brand name and designer dress, casual and athletic footwear and accessories for women, men and kids. DSW currently operates 517 DSW Designer Shoe Warehouse locations in 44 states and it sells online. DSW also supplies footwear to 289 leased locations in the US under the Affiliated Business Group. As a division of DSW, the Affiliated Business Group partners with multi-category retailers to develop strategies and business models for seamless, on-brand shoe assortments.
Of note, DSW is closing down its eBuys segment, which it just recently acquired in 2016. eBuys is an online off-price footwear and accessories retailer. DSW invested in the business and tried to make it work but was unable to do so. It just was not their core competency and it did not work out. And the online competition in the value segment is intense from Amazon and Zappos. DSW had tried to find a buyer but instead will undergo a liquidation process for eBuys over the coming months.
Results have been improving for DSW. After a series of negative comp results, DSW reported back-to back positive comps in Q4 (Jan) and Q1 (Apr). On May 30, DSW reported AprQ results. Same store comps were +2.2%, which was an improvement from +1.3% comps in Q4 (Jan). On a full year basis, comps were -3.0% in FY16, which improved to -0.4% comps in FY17 and FY18 is off to a good start with +2.2% comps in AprQ.
Management says recent investments in digital marketing drove strong momentum and online demand in AprQ, which increased by a remarkable 36%. Both regular and clearance categories comped positively. Transactions at the DSW segment increased in the low-single digits with significant gains in new customer activity. However, average dollar sale was slightly lower than last year due to a higher clearance mix and marketing activity.
For the fourth quarter in a row, footwear comps increased in the low-single digits, driven by women's footwear. The athleisure category continued to drive positive comps despite tough comparisons. Cooler temperatures drove strong boot sales, while delaying the start of sandal season. Weather also negatively affected its Power 35 locations given their regional concentration.
DSW saw an improving appetite for women's fashion footwear outside these areas. The men's business was equal to last year, and DSW looks forward to seeing this category return to growth in 2018. Finally, the company was excited to see the accessories category turn positive during the quarter, as fresh receipts in an edited assortment stimulated full price sales.
From a broader perspective, DSW says having the right product in the right place is critical to driving sales. And after two years of inventory destocking, DSW is beginning to see the benefit of a more productive inventory position. Its key item program drove a higher regular price mix and gross margin improvements. DSW was particularly pleased to see comps for the men's and accessory categories turn positive during the quarter, and athleisure sustained its momentum.
Of note, DSW is starting to consolidate its vendor base and expects to improve sourcing cost as DSW becomes a more meaningful account to fewer vendors. In terms of marketing, rewards enrollment and new customer acquisition are all trending favorably. Research also shows that DSW is gaining traction among teens. Looking forward, the launch of a new loyalty program should fuel more energy in the DSW brand.
In sum, DSW has made good progress with its turnaround. Comps are trending in the right direction for the first time in a while. And exiting the eBuys business seems like a smart move. The footwear business is very competitive but DSW seems to be making the right moves.