Christina Cheng - Senior Director of Investor Relations Roger Rawlins - Chief Executive Officer Jared Poff - Chief Financial Officer Debbie Ferree - Chief Merchandising Officer.

Jeff Van Sinderen - B. Riley Tom Nikic - Wells Fargo David Mann - Johnson Rice Chris Svezia - Wedbush Steve Marotta - C.L. King & Associates Camilo Lyon - Canaccord Genuity Scott Krasik - Buckingham Research Patrick McKeever - MKM Partners Jay Sole - Morgan Stanley Sam Poser - Susquehanna.

Good morning, ladies and gentlemen. Thank you for standing by. At this time, all participants are in a listen-only mode. As a reminder, today’s conference is being recorded. Now I would now like to turn the conference over to Christina Cheng, Senior Director of Investor Relations. Please go ahead..

Thank you. Good morning and welcome to DSW’s First Quarter Conference Call. Earlier today, we issued a press release detailing the results of operations for the 13-week ended April 29th, 2017. Please note that various remarks made about the future expectations, plans and prospects of the company constitute forward-looking statements.

Results may differ materially from those indicated by these forward-looking statements due to various factors, including those listed in today’s press release and our public filings with the SEC. We assume no obligation to update or revise these forward-looking statements.

Joining us today are Roger Rawlins, Chief Executive Officer; Debbie Ferree, Vice Chairman and Chief Merchandising Officer; and Jared Poff, Chief Financial Officer. Let me now turn the call over to Roger..

Thanks Christina and good morning. I’d like to begin today by discussing a few highlights from our first quarter and progress we’ve made against our 2017 priorities. I will then turn the call over to Jared, who will provide a financial update. At the DSW brand, we saw continued strength in our leisure distortion to at-leisure.

However, women’s dress, men’s dress and accessories were soft. From an inventory perspective, we pulled back casual sandals and invested in athletic and women’s dress. It is played out well in athletic, but not as well in women's dress and as a result, we are rightsizing our dress inventory while chasing the casual sandals.

As we address the challenged areas of our core business, we are also focused on assembling an experienced merchandising leadership team. We promoted Jim Weinberg to DSW's GMM of Women's footwear after two successful years leading our affiliated business group as General Manager.

Jim has vast merchandising experience across multiple retailers and I'm thrilled to have Jim leading our largest category. We've experienced several years of negative comps in women's, it's time to change that trend and I'm confident in Jim's ability to make that happen.

In addition, we've recruited Nancy Pastor, a Seasoned Executive in Merchant from the department store in off-price channels as DSW's new GMM of accessories. These proven leaders bring significant expertises that will drive women's and accessories back to position the strength that we know they can be.

I'm also very excited to welcome Michele Love to our executive team as EVP and Chief Operating Officer. Michele had a strong and distinguishing career at Nordstrom. Most recently spearheading heading the expansion of Nordstrom Rack. Mitchell will oversee all engagement with our DSW customer, including our digital experience.

We've recently launched our redesigned websites and mobile app, which drove a significant improvement in online conversion and user engagement. As digital exerts in increasingly larger influence over retail sales, we expect these platforms to expand DSW's online presence and accelerate digital demand growth.

Michele will also be overseeing marketing and the operation of our nationwide fleet of warehouses. By combining oversight of these critical areas under one leader, we will provide messaging engagement and storytelling united across all touchpoints. Our power store initiatives delivered encouraging Q1 results.

We have now closed the gap between our power stores and the balance of the chain, and we expect performance to improve with ongoing focus and actions as the year progresses. Finally, during the first quarter, we also undertook the transition of Gordmans and continued our integration of Ebuys.

Following the bankruptcy filing of Gordmans, we've been working through residual inventories through GOB sales as well as transitioning several locations over the stage stores. Additionally, we are liquidating some of our excess inventory through Ebuys.

This is just one example of how we begun to leverage Ebuys across our brand portfolio by making key infrastructure investments to unlock more synergies in the near future. Now, let me turn the call over to Jared..

$1.5 million pretax expense from foreign exchange transaction loss on Canadian dollar investments related to the future funding of our upcoming Town Shoes acquisition, $537,000 pretax from our cost restructuring initiative and $2.1 million pretax from the amortization of intangible assets and change in contingent consideration liability related to Ebuys acquisition.

When we exclude these items, adjusted earnings per share were $0.32, the rest of our comments will refer to adjusted results. While, first quarter comps declined 3%, I was happy to see performance improved coming out of the quarter, with April comps turning positive even after adjusting for the Easter timing shift.

Digital demand percentage growth was in the high-teens and our store fulfillment of digital orders increased by 52% and was just shy of 45% of all digital orders this quarter.

The enhance digital experience from our re-launched website is lifting demand conversions and reducing cart abandonment leading to dramatically improved check-out rates in our desktop and mobile sites.

Transactions at the DSW segment increased in the low-single-digits led by an increase in traffic, which outperformed the industry benchmark by 400 basis points. AUR and UPT contributed to lower average seller sales. Turning to our ABG group, comps decline by 1.7% this quarter.

Given the non-comparable activity occurring within the Gordmans' stores due to the GOB sales and the transition to Stage. We have removed the chain from the comp base. We closed 19 Gordmans locations at the end of the first quarter and plan to exit another 30 to 37 locations at the beginning of the second quarter.

We will transition the footwear departments at the 50 to 57 stores acquired by Stage stores during the remainder of the year. Additionally, we are clearing excess inventory and select DSW locations and Ebuys in order to maximize recovery value. Including a net new three new Stein Mart locations, the ABG division ended the quarter with 379 locations.

At Ebuys we continue to make progress establishing new direct relationships with branded vendors, which will improve the flow of inventory to Ebuys well further enhancing DSW's end-to-end relationships with the vendor community.

I am pleased with the new partnerships we have forged with vendors who have agreed to work with us across all of our matters, which improves our sourcing leverage significantly. We expect this number to grow as DSW Inc continues to increased market share in this consolidate footwear market.

We started the process of transitioning Ebuys existing fulfillment centers into one larger new facility in Nashville, Tennessee. We are taking measures to ensure as little disruption as possible and expect to complete this project during the third quarter.

There is new supply chain capabilities will allow Ebuys to accelerate growth during the important holiday season and beyond. Turning to gross profit, total company gross profit declined by 180 basis points with 140 basis points from merchandised margins and 40 basis points from fulfillment and distribution costs.

We optimized the timing of clearance activity this year reverting back to our legacy cadence of six rotations per year, three in the spring and three in the fall. As planned, we added a rotation to the first quarter, which accounted for the majority of our merchandise margin decline.

Incremental markdowns taken to manage inventories and category mix were offset by better markdown management and initial mark-ups. We also sort inventory reserves to account for aged goods as we align our inventory process during Ebuys' integration.

Total company occupancy expenses as a percentage of sales remain flat, primarily due to favorable real estate taxes. We continue to manage expenses through organizational efficiencies at our home office and store labor and as a result operating expense as a percentage of sales improved 25 basis points during the quarter.

With tighter discipline on discretionary spending, we will continue to identify cost savings while investing in key priorities in the medium term. We recorded a net loss from equity investment in Town Shoes of $1.3 million this quarter.

The unseasonal conditions in Canada and the challenging environment resulted in softer sales and higher market downs this quarter. Similar to DSW, we invested a new talent that strengths the merchandising leadership at Town Shoes. As we prepare for the ownership transition next year, Town will open only 2 new DSW Canada locations in 2017.

Adjusted net income was $26 million, resulting in an adjusted EPS of $0.32 per share. Turning to the balance sheet, excluding inventories from Ebuys and Gordmans, inventories on a per square foot basis declined by 2.6%.

We ended the quarter with $254 million in cash and cash equivalents including $75 million year marks for the eventual acquisition of Town Shoes.

We allocated $19 million in CapEx spending for the quarter and project $66 million for the full year, our lowest level of capital spending in the last 6 years with our focus on integrating our information, data and digital capabilities for tomorrow's retail experience, technology will account for the largest share of our CapEx budget this year.

Given the customers' rapid adoption of our digital infrastructure today, transforming our associate selling platform and partnership with industry leader Infor is one of DSW's strategic priorities. And as such, we planned for higher technology spending and technology related depreciation over the next few years.

As we open fewer new locations and undertake less free model and relocation projects, store related CapEx is expected to decline by a third from last year's level. Lastly, I'd like to provide some color on our full year outlook.

As we shared with you last quarter, FY'17 is expected to calendarize differently than the past few years with earnings weighted more closely to a 40-60 split between the front half and the back half of the year.

The front half is challenged by the website redesign, extra expense and minor sales disruption caused by Ebuys' fulfillment center transition, the additional clearance rotation and Gordmans liquidation.

On the other hand, the back half will benefit from the 53rd week progressive results from our power store and key item initiatives in a more impactful contribution from our kid's rollout during the back-to-school season. We are maintaining our guidance for adjusted earnings per share of $1.45 to $1.55.

This assumes comp at a low end of our prior range. Due to category mix and inventory management actions, gross margin is expected to be lower than last year as we focused on driving sales and gross margin dollars.

On the expense front, we continue to relentlessly review our SG&A spend with a greater discipline on discretionary and variable expenses while leveraging our scale across all of our businesses. We now project a low-single digit expense growth for the year. With that, let me turn the call over to Debbie for an update on merchandising..

Thanks, Jared and good morning everyone. We're working hard to manage the business in a tough environment. We made several categories distortions this spring, some of which performed well and some that required a necessary cross correction during the season.

Starting with athletic, we drove continued strength in at-leisure business with the addition of casual sports style, our athletic inspired footwear is now closed to a third of our business. We capitalized on a wider range of athletic inspired choices, that drove strong comp growth on top of last year's challenging comparisons.

Although, we have been able to continue to impact the category mix our merchandise margin this quarter, we expect the growth of this category to produce a modest margin headwind for the balance of the year.

In our seasonal category, we planned women's sandals for a double-digit decline at the start of the season and performance has been stronger than planned.

In hindsight, we positioned this category too conservatively and we've now moved into Chase mode with the bulk of a sandal season still ahead of us, we're bringing in additional receipts as we head into the peak selling season. Other category distortion had mixed results.

We’ve received encouraging results in open-up styles, but found the close-up dress styles are not resonating with the customers. We are evaluating ways to tactically drive growth in this category by focusing on top dress locations where demand is more constant.

On the other hand, we’re encouraged with the customer response to our fashion casual assortments, particularly with new silhouettes, knocked downs and her existing wardrobe today.

The results from our women’s category illustrate the need to continue to take calculated risks and operate at a greater agility than ever before with the industry providing more freshness Jim and his team will position DSW, to take full advantage of these opportunities to bring sustainable growth into our women’s business.

We must achieve positive comps in women’s to drive the business and this is our top priority. Similar to the women’s category, men’s dress was soft due to continued shift towards the casual and athletic styles and late receipts from a key vendor.

We are adjusting receipts and significantly editing our assortment to support the most productive items within them. In accessories, the trend was unchanged from the fourth quarter. Even the customer's selective purchasing behavior in accessories were rationalizing choice count to focus on fewer must have items.

I look forward to the first perspective that Nancy and her team will bring to the accessory business. We successfully installed DSW Kids at 75 locations this quarter, which now bring Kids to close to 60% of our locations. After applying our learning from last year, these warehouses have produced greater incremental sales than the first phase.

We are optimistic our customers, will find a compelling Kids offering during the important back-to-school selling period.

In addition to Jim and Nancy we’ve also made a number of key hires within planning and allocation this quarter and I am exciting with the diversity and expertise and experience we now have across the entire buying, planning and allocating organizations.

As we elevate talent and build one of the strongest teams in the industry, we will raise our gains. We will continue to develop great products and great customer experiences that was established Designer Shoe Warehouse at the premium destination for footwear. With that let me turn the call over to Roger..

Thanks, Debbie. Big ticket items, personal technology and rising cost of healthcare have created headwinds from discretionary spending and made the customer more demand of value. To compete in this environment we must remain focused on building great products and great customer experiences that differentiate Designer Shoe Warehouse.

Recent recognition from The Harris Poll and Conde Nast's 2017 Love List illustrates the strong brand equity that Designer Shoe Warehouse has built, particularly among millennial. We must continue working hard to earn the right remain top of mind and grow our share of wallet.

When we have the right products in the right place, we earn our customer's dollars. The assortment initiatives we started last fall has begun to improve assortment consistency on the floor. With key items penetration now doubled from last year’s levels and tracking toward our targets.

We’ve also made a number of merchandising process, management and talent changes across our power stores that have started to produce better customer service, more relevant content and stronger merchandising stories.

For example, we debuted a Made in Italy collection in a number of our fashion doors and customers have been quite excited by these findings. Additionally, store level marketing plans will begin later in the year aiming to reengage customers in these markets and drum up excitement for the changes we’ve made.

We expect to sustain and grow these improvements into the balance of the year. Our efforts to differentiate our merchandise have produced the number of exciting new brands and exclusive opportunities. We have secured the exclusive right to sale differentiated content from Adidas ahead of other retailers across the country.

We will start to offer our first collection of Underarmor adults and kid's footwear during the back-to-school season. And finally, we debuted the new exclusive collection this quarter with a broad digital marketing campaign and we have been pleased with higher search, conversion and sell through rates post launch.

We are also making progress towards our efforts to redefine DSW's warehouse experience. We're testing a new layout that creates significant additional capacity that allows us to hold more customer choices in every location.

We are also strengthening our visual merchandising in a way that presents product stories as powerfully in every warehouse as we do online. This new layout enables us to reclaim 30% of our existing cubic capacity for future market share opportunities.

And increased capacity also gives us more flexibility to optimize DSW's existing locations and footprint.

In conclusion, despite the challenging environment, DSW will be one of the few survivors of this retail consolidation, in a sea of sameness, we are singularly focused on creating great product and innovating new experiences that will nurture deeper, more meaningful relationships with our customer and inspire her to express herself through fashion.

I look forward to reporting our progress next quarter. With that, let me turn the call over to the operator for our Q&A..

We will now begin the Question-and-Answer Session. [Operator Instructions]. The first question comes from Jeff Van Sinderen of B. Riley. Please go ahead..

I wondered if you can -- I know you've talked about athleisure being strong, but I wondered if you can give us any sense there of directional changes you're seeing in athletic outside of athleisure, maybe how you're planning that business for second half in terms of inventory? And also, if you could update us on kind of the Kid's business will evolve for back-to-school this year versus last year?.

Yes, good morning. It's Debbie, thanks for your question. So, I would tell you in athletic, the results indicate a continued strong demand and continued growth in at-leisure. And when I say at-leisure, I mean both performance athletics and fashion athletic on the women's and the men's side that are not performance brand.

So the momentum continues, and we continue to fuel that business based on customer demand. Some of the things that are helping us here are the strength of the key items that we have from our core brand, some new exclusive and differentiated products and some new launches which we shared with you on the call.

So we see this demand continuing through second quarter and even beyond. I haven't seen this slowdown at all. And when you think about it, it's really in our wheel house, the whole athletic, at-leisure sport piece of the business that's in the non-athletic brand.

So we feel very comfortable that we're growing both the athletic piece of the business and also the women's piece of the business..

Okay, good to hear. And then as a quick follow up, can you update us on your latest thinking on real estate maybe if that's your thing at all in your mind.

I guess, which market and store size that you are leaning towards going forward and what is related thinking on what right number of DSW stores is? And then maybe just give us a sense remind, I guess of how many leases you guys have coming up for renewal over the next couple of years, if you decided to wanted to flex?.

I think Jeff, this is Roger. As we’ve said on the call, the work we're doing with our one store, I would call it the prototype of what we think the future store looks like, frankly is going to have a significant impact on what our future real estate strategy looks like.

So I think as we’re working through that and understanding how we can increase capacity getting more units in front of the customer and perhaps with a smaller box, those are things we’re trying to solve. What I would tell you though, that we are very passionate about, is having our warehouses as close to the customers we possibly we can.

And today, we said this before, but we’re within 20 minutes of 70% of U.S. population and I think we would want to stay in that kind of ballpark. So the number, long-term, could change, the size of them could change, that’s all stuff we’re working on to try and solve right now..

We have an average of about five-year terms, when we renew our term. So on average roughly we got about 20% that's coming up for renewal every year..

The next question comes from Tom Nikic of Wells Fargo. Please go ahead..

I wanted to just ask about the comp. I think you said traffic was up low single -- or transactions and traffic were up low-singles and that the comp decline was driven by ticket size.

Was that just a function of the extra clearance rotation in the quarter or was there something else going on there?.

This is Jared. What we said was that transactions were up. So the low-single digit across the segment, which includes .com demand, as well as store generated demand, transactions were up and ADS was down, both AUR, as well as UPT.

So we saw the impact of the rotation by all means, but overall, I would say, mix continues to be a part of what we see and it really was just a function of the selling..

And just for the full year, I think you said low-end of your prior range, which would suggest down low-single.

Should we kind of assume basically sale into back to positive, in the Q3 or Q4?.

What I would say is right now we are looking at the comps progressively getting better as the year goes on. So without giving quarterly guidance, what we feel comfortable with is for the full year saying that we're going to be at the lower end of the original guidance below down low-single digits.

But again we do expect progressively better performance throughout the year..

Especially given Tom that if you look at our performance last year and the back half was significantly worse than the front half. So that’s what I would say..

The question comes from David Mann of Johnson Rice. Please go ahead..

In terms of the website redesign, it sounds like you had some success on the conversion side, but you're also calling out some I guess impact in the first half.

So can you just talk a little bit about the performance from those site sales wise, was there any negative impact and how you expect that proceed throughout the year?.

Thanks for the question, David this is Roger. I think I'm excited, we are very excited about the results we seen along conversion. And that was the reason we went through the site redesign was that we made it mobile first.

And unfortunately, we've really have not done anything I would say for the funding of the sites in the last 9 years in a meaningful way. And so, a lot of the SEO connections that are exists for 9 years you lose those when we went through this process. So traffic was softer, but that was something we knew was going to happen.

But I think overall, I'm very very excited about the results we've gotten through conversion really has been the big change. And we keep talking about this, but we love the fact that there is a significant number of our customers who visit our website, and now the majority of them are visiting on a mobile device.

And for them to have it consistent experience from what they see on that device to what they see when they walk in the store, we think this site redesign gives us that kind of capability and that's the direction we'll headed..

And then, Jared, in terms of guidance here, your gross margin guidance I think is a tad weaker than you talked about on the last call.

Can you just talk about the puts and takes as we should look at them over the rest of the year?.

Sure. So, from a margin standpoint, we've got markdown favorability that we're anticipating. Again sequential improvements throughout the balance of the year.

That's driven by our key items, continued key item traction on the power 35 traction which Roger talked to you and we're very excited about in at-leisure in general tends to be a little bit of a markdown performer that's better than the balance of the chain.

And we do still see headwinds coming from shipping as that continues to be direct-to-consumer a piece of fulfillment that grows.

Although, the headwind we do expect to become less of a headwind, but a headwind nonetheless as the year progresses, and Ebuys as we've talked about before, they've got a transition to their new distribution center taking from -- it already started a little bit in the first quarter, but going through the third quarter.

And we expect that to also provide some headwinds on the margin side..

And then, on Ebuys. I think you've talked in the past that the long-term opportunity maybe to clear goods through there rather than the way you have in the past.

This effort that you did this past quarter to liquidate merchandise, did that give you any sense or snapshot on how much better margin could be through liquidation for Ebuys versus through the stores as you've done that?.

Sure. What I will tell you is, we've run some very manual events, where we have actually taken some of our deepest discounted products from the stores that are around the distribution centers at Ebuys and send them to Ebuys to list and sell.

We were very very pleased with the results that we saw with them selling on their marketplaces versus having that visible only to people that we're walking through those specific DSW stores. And we think there is a very big unlock there.

This new distribution center helps set the stage for that with the additional investments we're making in the technology that we talked about down the road, that's going to further enable us to be able to do that. Seamlessly, so we're not having to actually shuttle the merchandise from the stores over the Ebuys. [Multiple Speakers]..

Sorry this is Roger. I think the big things for us in Q1 was the work that our team did to transition from what is really four different fulfillment center that were dispersed throughout the United States supporting Ebuys into one location in Nashville.

So we haven’t really turned on a lot of the capabilities that we think we can bring the life with Ebuys, because we had disconnects on facility. So I think, we’re now positioned were primarily in the back half, we think there will be some opportunity to go in a different direction with the assortment.

I think the other challenge that we have, I shouldn’t say challenge, the thing we have to look at is, as we started to make those goods available. We also have to make certain we’re not feeding too much because that business was not built around having access to the number of units that are available within a DSW.

So again we can make certainly have the right infrastructure that can handle that volume too. So those are all things, that’s why we’re moving to the pace to make certain that it is successful long-term and doesn’t damage our relationships in the marketplace..

Very helpful. One last housekeeping question. Jared, in the guidance you gave last quarter, you talked about how the Gordmans liquidation might impact you. Given that Stage is taking 50 plus stores and looks like they’re going to operate them throughout the rest of the year.

Can you give us a sense and an update of what’s in your guidance for the Gordmans impact?.

What I would say is, we were very happy with the progress that we’ve made through the liquidation and then obviously finding a transition agreement with Stage and that transition agreement is one of that bleeds down overtime.

So they have their own footwear business and will ramp up as a course of the year progresses and as we ramp down, but it is something that we’ll continued for a little bit to get this year. So overall, I think we’ve managed our exposure to the Gordmans GOB very, very well.

All that being said obviously still one is would something that was a drag for last year versus last year.

And we have taken a fair amount of activity and moved product from Gordmans stores to nearby DSWs on occasion, we’ve taken it from the Gordmans fulfillment center and moved it Ebuys, we kind of maneuvered it all throughout the organization and actually have been very -- it makes it very challenging to pinpoint what its specific overall impact is just related to that.

So net-net, we’re very comfortable with our full year guidance of $1.45 to $1.55, but I’m not really able to breakout the exact impact of every piece of the Gordmans liquidation..

The next question comes from Chris Svezia of Wedbush. Please go ahead..

First question, I guess just on the comp going to the lower end of your range for the gear. I was just wondering, is it a function of -- because you commented in April, you turned positive.

I mean you don’t have given any indication of where you are right now, but is it a function of the fact you don’t have enough sandal inventory, you’re chasing that product and maybe some errors in women’s dress business that are causing maybe more conservative comp view in the near to medium-term? Or is it just the fact that Q1 sells below -- down 3, was probably below where you expected, so therefore, you’re resetting now.

I’m just of curious about how you think about those all conditions?.

Good morning, Chris. This is Debbie. Thanks for your question. So just as I address sandal, sandal planned in a double-digit comp drop for the season. But the reason that was is because of the strength, continuing strength of the athletic and non-athletic sport business.

So, it's really more of a balancing act to come out here to your total comp, but the sandal inventory that we have right now that's selling through much faster than we expected, we're pulling upper receipts for buying more receipts and we expect to have a solid performance in the sandal category for both Q2 and actually into Q3.

You remember last year, we ran out of that product and we did not fund our hot stores at warm doors way that we should have.

As far as dress shoes are concerned, we're right sizing that inventory and that was where some of the biggest comp pressure happens, but there are pieces within that category that are actually doing very well while we opened-up product is doing very well, closed-up category is not and so we're actually taking the markdown to make sure we transition in a clean way into the third quarter there.

So, does that answers your question?.

So basically just in a nutshell, the first quarter comp decline of 3% might have been a little bit lower than what you expected and therefore you're slightly adjusting a year to be a little bit lower versus we don't have enough sandal inventory to kind a chase the business, drive the comp and dress sort of is underperforming, is this issue today?.

Yes. And I think what you will see is based on the adjustments that we made both in the dress inventory and the acceleration of sandal receipts, you're going to see sequential improvement throughout second and third quarter relative to what you saw in Q1..

Okay, thank you. Roger, just a question for you. when I think about Town and Town Shoes, that integration process and I don’t know if you could just tap or color about this, but it seems like according to -- it generates roughly $260 million in revenue, you've lost some money in the first quarter.

When you fully integrate this business and it flows through the P&L, kind of walk us through what you're going to do to improve the profitability of this segment so that it doesn't -- so that’s not dilutive for the full company for DSW once it's integrating next year..

Chris, thanks and also thanks for the question on Town, because we're excited about what the potential looks like there. What I will tell you is we're going to get back to everyone later this year with a pure game plan of what we're doing. So I'm really don't want to get into the specifics as we sit here today.

But what I will tell you is that, we have franchised our DSW brand up in Canada and we're excited to really start to manage that brand on our own and we think there are obviously significant synergies as we manage the DSW brand alone with Town and other businesses. I do think that Town brand itself provides some differentiation for DSW Inc.

because that gives Debbie access to brands and goods that perhaps might not be available today at the DSW. So we're thinking through how can we use all of those brands to impact our relationships with our vendor partners and ultimately grow both top and bottom line..

Okay. Thank you and all the best..

The next question comes from Steve Marotta of C.L. King & Associates. Please go ahead..

Jared, can you please comment on the composition of the current inventory and clearance activities that's expected in the second quarter?.

I guess, from a markdown perspective again without giving quarterly specific guidance, we are expecting to see our markdown performance improve versus last year on a -- sequentially better as the year goes on. So again we saw some markdown unfavourability this year primarily related to our clearance rotations.

We see that headwind, still probably some headwind into the second quarter, but not nearly to the same extent and progressively getting better as the year goes on..

Okay.

Deborah, did you say that athletic is a third of the total women selection?.

Yes. So it would be the performance athletic, which is the true athletic brand, plus the fashion women’s and men’s brands that don’t fit in athletic space. So we call that at-leisure, because the customer demand in sneakers that could reside either in the performance piece of could reside in the fashion sport piece.

So that is the sum total of both athletic and fashion non-athletic..

Great. And if the women’s and men’s comp was given, I apologize, I missed it.

Could you offer that please for the quarter?.

We’re not giving specific, our comp numbers at the department level anymore..

The next question comes from Camilo Lyon of Canaccord Genuity. Please go ahead..

Roger, I was hoping you could maybe help disaggregate, the difference between the stores that are seeing positive store traffic and the one that are seeing negative traffic and what are you doing in those stores that are giving that positive traffic? Specifically, and what I’m really getting at here is, how much self-help opportunity do you have in front of you to really turn a change traffic positive?.

One thing I will tell you is in all of retail, getting positive traffic into a brick and mortar location, I think is very few people, I think, that are accomplished in that. I think where we are having success is leveraging the 25 million rewards members that we know and engaging them in a unique and different way.

And to me, that is the opportunity that we have, and I’m proud of our marketing team, our traffic, I think significantly beat what we get from a competitive landscape standpoint and again using that rewards information to really drive our business is an important part.

I also think our field organization and Michele being here now is going to help this. We’ve got to do a better job of capturing data on those rewards members. It’s great that we have 25 million reward members, but we need to have 25 million addresses as well as an e-mail addresses and that works that we’re doing.

And we’ve talk about our technology will rolling out here in the next 12 months with the support of Infor. That’s why we’re going down that, so that we can have technology that’s in the store.

So our associates instead of having 9 devices would have 1 device, instead of having 30 logins, we’ll have 1 login to be able to engage a consumer in a way that frankly, we could not do today.

So our path to getting, I would say traffic improvements will come through the hardware of our field organization, the support of our marketing team, but then ultimately, I think be driven by the technology we’re rolling out, that will make it easy for our associates to engage the customer and for the customer to provide us that information..

Thank you for that. If I could switch topic here for a quick second. Jared on Ebuys, could you help me understand, help us understand how much of a contribution in the first quarter came from the liquidation.

I'm trying to parse out the true organic growth of Ebuys versus what seems to be more ephemeral in nature?.

The liquidation, I guess I'm not following what liquidation are you referring to?.

The Gordmans liquidation that you ran through Ebuys?.

Yes, again, it's very challenging to break that out. When you look at there were store specific movements made and various things within distribution centers and their fulfillment center going to process through Ebuys and going to some of this DSW.

So, when we look at the overall and if it's very muddy and to give you a number with specificity, I think would just be a guess. Overall, like I said we were very happy with the results again in that situation. And I think our team managed the overall exposure as best they could. .

Okay.

So, but it is safe to say that 48% growth is not the right number to be thinking about for that channel?.

For the Ebuys?.

Yes. .

Yes, I mean on a go forward basis, I think that would be a pretty aggressive growth target overall from a sustainability standpoint, yes..

Okay, thanks. My last question Debbie for you is, you've had a fair amount of turnover in your GMMs and women's sounds like you said has been under pressure for quite some time.

As you step back and think about the business, think about your place in it, you think about the demands that are now being placed on vendors to be quicker to market and quicker to you with inventory as you also try to manage your inventory more tightly.

What do you think you need more of or what do you think really gets the women's business to turn positive for you?.

Well, that's a great question. And I wish I have the couple of hours to sit and to talk to you about this, but I'll try to keep it brief.

Number one, speed-to-market is critical and we're trying to work with all of our vendors to try to make sure that they increase their speed not only in terms of new product to market, but in the timing as they get it, to enter the market and into the customer's hands. And I think our industry needs to improve in that substantially.

I think that when you think about talent and the kinds of talent that we need -- we're always looking for great talent and the kind of talent that you need today to really run a business that is been where the customer is really changing their expectations, what they want, how quickly they want it, I think when you took a look at our talent in the organization, we found that there was opportunity to elevate some talent that was in the organization to bring this strategy to life in a quick way and to work with the vendor partners even a little bit more closely than we have and to also hold our team in DSW accountable, which I think we can do a much much better job of that.

So the talent changed, changes that we've made we promoted from internal talent. Jim was an internal promote and we've gotten some talent from the outside, Nancy was from the outside.

And I think this blend of diversification of talent to bring us to a more elite team is going to demonstrate results that we're going to be very pleased with going forward in the future..

Can new vendors accommodate the speed to market? It seems like there is only one vendor in the market, Steve Madden, that can do that well?.

Yes. He's pretty good at it. Actually, he's fantastic at it.

But there are many brands that we're working with much much more closely and trying to understand their supply chain process and how we can work with them either on material or doing more testing, earlier testing, faster testing, speed-to-market testing, moving test items to bigger items, and there are actually a handful of them that are doing very nicely for us, no question that Madden at it actually the best at it, but he’s kind of provided the gold standard by which we’re holding many of the other vendors accountable.

So I think you’re going to see some significant changes that will result in some positive results going forward..

The next question comes from Scott Krasik of Buckingham Research. Please go ahead..

Two, first one on guidance, and then sort of a bigger picture question.

Jared, just wondering, it seems like investors after 1Q didn’t sort of understand the puts and takes of the quarter, I’m just wondering how close we should model this 40-60 split in terms of the first half and second half EPS guidance to your comment?.

Again, we don’t give quarterly guidance, but with the 40-60 split, you can probably back into Q2 pretty well. I think, we feel pretty good about that’s what, so that’s one to support the $1.45 to $1.55 and given the puts and takes that I walk through, we feel pretty good about the 40-60 split..

Okay. And then Debbie -- thanks, and then Debbie, as you look at the back half of the year, we’ve heard that there’s already a lot of casual booties out in the marketplace, that maybe the department stores were packing away product last year, and it’s obviously a potentially high margin big category for you in the back half of the year.

So I’m just wondering how you sort of expect to drive better comp performance in the back half of the year? Boots appear to be challenging..

Sure, so obviously, athletic continues and like I said I’m very comfortable with the kind of demand, customer demand that we are seeing, that I just believe continues. Kid’s growth continues, as you know, we just started another tranche of stores in March, and so we have that going for us as well.

On the other category that we are starting to see some really nice results and specifically in the women’s casual category. And there’s many things that are working there right now continue, flat, sport, work.

And then, in sandals, last year, I remember us talking to you about third quarter really running out of casual sandals because it’s still very, very hot and not really having protected our zone 1, which is our warmest zone in the country, the way that we should have. So I think, there’s an opportunity there.

Boots, we are going to be planning very conservatively, the same categories that worked last year are not working this year, but will not be working with this year, because I think that they have kind of seen their end of life.

But there is some excitement that is happening in the boot category, and the categories within boots that we plan to drive, should actually get us some higher AUTs than we’ve got last year.

So it’s going to be a balancing act, but I think that there is enough positive going on with some new trends and continuing trends that it makes me confident in our back half..

Scott, the other piece of the back half that we think will have a significant impact are our power stores. And the assortment changes that we have made in those stores where we’ve increased the penetration significantly of better and best brands, and I think that -- those stores are a material portion of our top and bottom line.

And the changes we've made there, those stores have been gapped anywhere from 500 to 600 basis points below balance of chain. And as we've closed that gap and we look for the balance of year to actually have that gap to go the other way. So we believe in the power doors to be able to drive the comp as well..

The next question comes from Patrick McKeever of MKM Partners. Please go ahead. .

Question on the enhancements that you've made to the website, the redesign and then the relaunch. What were some of the specific things that you've did that are driving the big increase in conversion.

And then I was wondering if you could run through some of the numbers again that you mentioned earlier? I think you said digital demand was up in the high-teens, but not sure. And then, my second question is just on all the store closures across the department store space, and also on the footwear space.

The liquidation sales likely in the second and third quarters and then probably a lot of closed stores going into the fourth and into next year.

My question is how are you thinking about the industry rationalization and how does it play into the guidance through this year for both sales and also gross margin?.

Patrick this is Roger, I think the first. I will tell you the biggest change that we've made was going through responsive design and the vast majority of the conversion improvement we are seeing is through the mobile device.

And its material, and when you think about it again our site was designed 9 years ago when the phone I had was a flip phone, that wasn't really set up to allow me to do commerce on a device. And I think that kind of change that's where we're seeing the vast majority of our improvement is on the mobile device.

Jared, you want to talk about the other?.

Sure. Yeah, what we had mentioned is that the digital demand as a portion of our overall segment demand had increased in the high-teens. And our -- the amount of sales that were digitally demanded but fulfilled from a store was in just shy of 50%. So -- I think it was closer to 45%.

So at the end from an omni, multi-channel standpoint, as Roger talked about for a quite a while now, we are looking to focus on driving digital demand and fulfilling it from the place that makes the most sense anywhere in the chain and we've built the infrastructure to do that and it's playing out that way..

And again when you connect that with, what we've talked about on the call, the experience we're creating in and a store where there is 30% roughly more choices available to a consumer and within 20 minutes of that consumer, it will create a, what we believe is a competitive advantage to be able to get those goods quicker to a consumer than our competition and offer them a broader assortment in a local market than they can see anywhere else..

And then, just a quick follow up to that.

And just digital demand up in the high-teens, what's the comparable figure for that? Did you say back in the fourth quarter that -- did you say at the mid-teens at that point in time, so would that be the acceleration from mid-to-high teens?.

I think that's, yes, that's right. And that was impacted negatively in Q1 and also we’ll continue throughout the spring season, because of the loss of some of the SCO traffic that you would have naturally have received.

So again, we’re very excited about the changes we’ve made in the customers response to it and not just tough, but also on our mobile apps and I’m probably not to say this, but we’re launching a droid app this week as well. So actually our IT person is probably going to shoot me for saying that.

But we’ve got to be much more aggressive in our customer facing applications and things we’re doing, and I think the changes we’ve made on the site are the right changes, and it’s where we are headed..

And then, on the rationalization?.

On just department store? Is that --..

Exactly, just how that plays into guidance?.

What I would tell you is we think that the closer of doors in department store space and the Gordmans space and the Payless space and you name it, the footwear space is consolidating. We are looking at capturing a market share in this consolidated environment through whatever channels make the most sense.

We have reached out and a targeted campaign towards make these customers and other stores that are closing. And what we have found is, on a lot of them already what rewards members and so it’s making sure that we let them know and that we'd love to continue to service whatever footwear needs that were having met by these department stores.

We are not necessarily building into guidance anything specific related to 200 doors closing in this market, but overall our goal of driving market share gain is something we’re absolutely focused on. And we think as this market consolidate, we are going to be the best beneficiary of that..

The next question comes from Jay Sole of Morgan Stanley. Please go ahead..

Great. Thank you. Roger, at top of your comments you mentioned obviously, there is a challenge going on. But also you slightly highlighted some factors that are pressuring the consumer, I think you mentioned rising healthcare costs and big-ticket items.

Can you talk about what factor is more important right now? And maybe, what’s the figure driver of the changes that are happening in footwear overall?.

Jay, I think as we’ve been looking things the data point that I would refer you to, is there was a -- I think -- I forgot what it was, but it was well, someone had issued a report that said our sector, meaning footwear apparel, that over the past 20 years, our area had been hit harder than any one meeting.

We had lost the largest share of wallet of the consumer. And what we are seeing and I think it was consistent with what was in that report was that, it’s about healthcare, it’s about education and it’s about services.

So as we're thinking, how can we address opportunities that provide services related to footwear? For those are things that we believe, we can add and we have the right to add to our consumer base.

That’s something they would value from us and then connecting that through our rewards program and engaging again and in experience that is unique when they visit one of our warehouses. Those are things we think we can bring to life that will counter some of the declines that have taken place in our entire retail sector..

The next question comes from Sam Poser of Susquehanna. Please go ahead. .

I just wondered if you could give us the idea of sort of -- without giving specifics, what percent of your business is touched by digital? It doesn't mean you're buying it online, but I mean how many people are accessing and coming in to the stores or buying online? I mean just how much is just touched by digital right now versus let's say couple of years ago?.

Yeah, Sam it's a great question. I think it's just a between 70% and 80% of all of our customers as being engaged with our brand, that engagement starts in a digital way first. And when you think about the impact of that and stuff we're doing can ultimately have on the experience with the customer that is a significant impact.

And what we are working toward is when they are on that device, and they're looking at the device. And they see like right now the Top 5 trends in the spring season. And then they walk into a DSW warehouse and they do not see those trends stand out when they walk in, you suddenly created a disconnect with your customers.

So we've got to figure out ways through how we market, how we present, how we talk to the consumer to make that experience consistent between the mobile device, between their desktop and between them walking into the warehouse.

And that's work we're doing and again we have a lab store that we're working through that we're really excited about how we can change that experience. Because we think if you don't do that then you are not a digital business. And yeah, it's great we're using our warehouse to fulfill demands, but that's price of entry.

We got to figure out how we develop and build experiences that are unique and differentiated and start with that, I would say, digital mindset or just put the customer first. And if we do that we're going to we're going to win..

Thank you. And then I guess the question, I know you've talked over the years about your rewards, your rewards both being 90% of your business, your comps does not then -- they haven't been great over the last few years.

I mean what can you do -- at 90% what can you do to bring that up? Because it's -- you're getting new people, but are they all coming to the party as much as you would like, I guess is the question.

And how do you get more productivity out of them to start driving improved same-store sales?.

The same I would say, I think, the first things starts with getting our women's products right. And as Debbie mentioned, when I told you this before when we met, we've made visits to our warehouses as a team and we were not satisfied with what we were presenting to the consumers.

So it's starts and frankly ends right there, we've got to get the right product in the right place on the women's side. And when that happens, then I'm very comfortable that the traffic we are getting they are coming to us. Unfortunately, they're not liking what they were seeing at as a greater they had the year before.

And that is about product and that's the talent that Debbie has addressed. So I would say that's the big driver for us..

But, one last thing, is that product or is that the experience, or is it that combination, because you mentioned you've started off the discussion on experience, is that what is the line I guess?.

It starts with product first and then experience second, that's what I would tell you. And I think what we've seen in our power doors where we have addressed the product. We're very excited with the results we have seen. And we have not addressed anything I would say around experience yet in those stores and that would be next.

But it’s a very clear, based on the results, we’ve seen in those doors, where Debbie and team have done exactly what we need to do to balance the company, that when we had the right products, she will buy it..

Well, thank you very much. Good luck..

You’re welcome. Thanks..

This concludes the question-and-answer session. I would now like to turn the conference back over to Roger Rawlins for any closing remarks..

First of all, just like to say thanks to everybody for calling in and again to our associates on the call. Keep up the great work and we are making incredible progress. So thanks everybody..

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines. Have a great day..