Q1 2021 Designer Brands Inc Earnings Call
Good day and welcome to the designer Brands, Inc. <unk> 21 earnings call all participants will be on listen only mode.
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I would now like to turn the conference over to Stacy turn on please go ahead.
Morning earlier today, the company issued a press release comparing results of operations for the 13 week period, ending May 4.2021, and 13 week period, ending May 2020. Please note that remarks made about the future expectations plans and prospects of the company constitute forward looking statements results may.
Differ materially due to various factors listed in today's press release, and the company's public filings with the SEC. The company assumes no obligation to update any forward looking statements. Joining us today are Roger Rawlins, Chief Executive Officer, and Jared Poff, Chief Financial Officer, now, let me turn over the call to Roger.
Good afternoon, and thank you everyone for joining us today, we're particularly proud of our first quarter performance and energized by our continued progress we'd like to thank our associates for giving their best to our company and customers and helping us achieve our near term goals. Our recent internal associates survey confirms we can.
And you have a very engaged associate base, which has been critically important to our success. We're.
And we're seeing notable progress against the roadmap, we've laid out and the second half of last year and we're excited about what the future holds.
Continued improvement highlighted by a return to profitability for the first time since the onset of Covid bolsters, our confidence sales have exceeded our initial expectations and we achieved and exceptional first quarter gross margin rate.
Inventory turns are improving and we saw continued robust performance and the athleisure category, while beginning to see strengthening results and our seasonal business. We continue to optimize the factors and our control that will maintain our momentum as the market continues to rebound.
We've positioned our assortment to capture market share and athleisure and area, where we have been historically underpenetrated to the market and we're gaining share.
Although our overall dress business remained depressed our seasonal product sales significantly outpaced our initial expectations and the improvement and sales relative to inventory was a major contributor to the upside and our gross margin in the quarter.
We remain in chase mode, and continue to leverage our scale with key vendors more importantly, we leaned on our vertical capabilities with our commuter segment to give us an advantage in these categories by selectively increasing production at <unk> to support the demand that materialized R.
And our vertically integrated capabilities are a strategic differentiator for us and will enable our company to be well positioned as seasonal demand further rebounds.
Although store traffic continues to be below historical trends, we're seeing a significant recovery, specifically and the U S. The.
And there remains a considerable rebound opportunity for the second quarter and beyond.
Our digital business continues to expand and our stores remain crucial points of distribution and fulfilling orders received through our digital channels.
As we discussed last quarter, we continue to refine our strategy and playbook given the realities of our day to day and a COVID-19 impacted world.
There are numerous signs that the macro environment is improving providing tailwind to our DSW business with vaccination rates rising and new optimistic CDC guidance U S. Adults are feeling more comfortable returning to social activities.
Consumers are beginning to spend and categories that were hit hard by the pandemic, including beauty apparel and footwear.
At DSW, we are well positioned to capitalize on these trends and continue our momentum our pivot to athleisure is yielding strong results and we continue to take share in this important category.
According to NPD P. O S data DSW is outpacing the rest of the market and athletic by 15 percentage points versus the same 13 week period, ending may 1.2019.
We continued to grow in line with the largest brands and footwear as we focused on growing our relationship with the top 50 brands.
And having the right brands and styles is enabling us to drive strong demand and we are simultaneously evolving the store and digital experience for our customers.
This begins with resetting our store floors. When you walk into a DSW location, you will consistently see the best brands front and center right now that means you're walking right into and athleisure assortment, but will continue to evolve that lay out as trends change and.
To support our strategy.
We have hired a visual merchandising leader. This is the first time, we've ever had this talent, formerly and our business and this role supports our customer first mindset and evolution into a more vertically branded business.
Before going into more depth on some of our strategic initiatives, we do want to provide some color around our relationship with Nike.
Given their continued focus on the direct to consumer strategy similar to our own approach with Vince <unk>, we were not surprised when our largest athletic vendors shared the news with us they will not be taking further orders from DSW or our Canadian operations beginning in September 2021.
We will continue to offer their product and our stores and online through the remainder of this year normally we do not discuss our relationships with individual vendors, but thought it was important to give some detail around our athleisure strategy moving forward.
First we want to remind you that no single brands is material to our operations and D. V is a broad assortment across multiple categories and channels is what differentiates our model from many others. This spring and accounted for less than 5% of our total sales in 2019 and grew to just over 7% in 2020.
As a result of the mix shift as dress and seasonal dropped off significantly during the pandemic.
On a positive note we have an active dialogue with all of our top 50 brands and in the wake of this news have spoken with the leaders of every single major athleisure brands that we work with these.
And these conversations have been very positive they see this news as an opportunity for growth and we couldnt be more excited about the work ahead with these brands.
We're also continuing to grow new categories, we haven't traditionally carried and athleisure bike trail hiking and technical running and implementing new experiences that will support these brands partnerships.
We are partnering and new ways through marketing to bring these brands to life, both in our stores with shop in shops and via amplification of their presence through our online channels. We will take every action every action necessary to ensure we retain and grow our customer base and athleisure.
Our strategic focus for us continues to be giving the customer what they want and we remain heavily focused on the top 50 brands and footwear and at the end of the quarter. These brands represented 78% of our sales. This is significant given our goal for 'twenty 'twenty 1 was to increase our penetration of this category to 75%.
Representing growth of 50 per cent compared to 2019.
Focusing here enables our company to maintain better in stock positions and allows us to be less promotional and given the demand for these major brands.
So let me give you. An example earlier this month, we had a call with the leading athleisure brands and the last year, we have grown our business with them over 300% and plan to hit 400% growth by the end of 2021, we value them as a partner and they have shared they are committed to making <unk> a primary point of distribution.
For their hottest selling items moving forward.
Our rewards program that offers brands access to a large female customer base connected with the digital and physical presence that can create unique experiences for their brands forms a strong foundation for a desirable partnership.
We're also shifting our focus more heavily to our owned brands owned brands include exclusive brands that you can only get at DSW like Kelly and Katie mixed number 6 and others. In addition to brands and which we have an ownership stake like J Lo Vince Comito Lucky and Jessica Simpson.
Having the ability to design and source the majority of this product through Caboodle and having full control of the supply chain enables us to move these brands faster through our DSW channel when demand increases.
We also have the ability to more carefully control pricing with our owned brands. These brands are performing strongly and 15, yes, 15 of our top 25, selling items and the first quarter, where items designed and sourced vertically by designer brands Jay.
<unk> a product designed by D. B is gaining notable traction as we move forward with our plans for a relaunch of this brand and the fall.
We're the best in class assortment, we are a footwear powerhouse with the ability to introduce new brands to the market and create long term growth for both us and the brand.
Turning to marketing meeting the customer where they are is crucial to our strategy.
And we understand our customer with shopping and the digital space more than ever and the past year. Therefore, we invested heavily and digital marketing largely funded by significantly reducing our markdowns.
Focusing on large national brands means we don't have as many markdowns gross because of high customer demand and requirements from the brands themselves that prohibit markdowns.
We have read the redeployment those dollars into marketing focused on customer acquisition. This investment resulted in top line benefits and VIP enrollments for the quarter were very strong with $1.4 million new members. Additionally, as a result of these investments March was our single largest month of new members.
Lineups and the history of our loyalty program.
Turning to Cuda, our commodity business remains challenged when compared to its historical sales levels, given the reduced demand for dress footwear, but beat our initial internal expectations. As we are seeing some recovery with more consumers getting vaccinated and becoming comfortable attending social occasions.
1 of our biggest competitive advantages is our ability to quickly turn on production when we see changes in consumer demand and that's what we did and the first quarter. Our initial plan had kudo production down and the first quarter, but when demand increased we accelerated production and ended the quarter with production up compared to 2020 as we responded to.
Positive sales trends.
Production is still down compared to 2019 due to shifts and our customer portfolio and continued depressed demand for dress styles across the industry, but we are excited about this shift in consumer spending and expect production for <unk> to be up again versus 2020 and the second quarter.
Soon the majority of the product we produce it can move up will be for the benefit of our own retail and direct to consumer channels and our position as a vertically integrated retailer enables us to gain market share with our leading position and footwear.
I want to remind you that when we sell goods to the in consumer that we produced ourselves the margin we generate for DVI is approximately 1500 basis points higher than selling goods made by someone else. This is the key to unlocking future profitable growth.
Moving to digital following this success, we had in Canada, we implemented the retail and planning disciplines from DSW on Vince can ludo dot com and put this side on the DSW platform.
<unk> Dot Com is now on the same e-commerce platform and has access to the same roadmap of features and benefits as DSW Dot com. This platform gives them to scale and support to grow exponentially, while lowering the overall cost to operate Vince.
Vince commodity dot com has the added benefit of being able to leverage DSW stores for returns and giving our customers more choice and convenience and fact of those customers that do choose to return product almost 50% choose to return to a physical DSW location and the first quarter. We have seen early signs of success.
SaaS with Vince can ludo dot com and net sales higher than 2019 by 129% moving.
Moving to Canada. The region continues to experience headwinds due to COVID-19, lockdowns and restrictions, which have negatively impacted our recovery efforts, resulting in store sales down about 46% compared to 2019 and up 63% compared to 2020 as all stores last year were closed for <unk>.
Almost 7 weeks, however, sales continue to outperform our initial expectations and digital remained strong with 202% growth compared to 2019.
We continue to lean more into athletic and kids footwear, which are focus areas for Canada, representing 60% of our assortment in 2020, 1 as compared to 41% and 2019 looking.
Looking ahead, we will plan to leverage our digital platform and store experiences to continue to attract customers before turning it over to Jerry I'd like to quickly touch on our results results and the first quarter continue.
As we return to profitability for the first time since Covid hit and we're very pleased with our performance relative to our initial expectations with comps up 52%, marking the first positive comp since the third quarter of 2019.
The first quarter as critical time for our company as Marvel is 1 of our 2 biggest selling periods of the year.
We saw strong performance during this holiday period with improvement throughout the quarter merchandise margins also significantly improve compared to 2019, and 2020, driven by strategic price increases and lower markdowns.
We continue to invest and digital and demand outpaced the strong growth seen in the first quarter last year with a positive 13% at DSW Jared will share more about this and just a moment.
As we look forward, we believe the positive trends and the first quarter will continue and we are optimistic that the industry will recover more fully as we head into the fall.
We've been aggressively going after athleisure market share and growing penetration with the most popular brands, we said, 50% of our assortment would be athleisure and spring of 2021, and we have made excellent progress against that goal and fact, we now expect to reach close to 55%.
And the second half of the year, we will continue to follow the customer recovery and make selective inventory investments that mirror demand growth, while maintaining flexibility and liquidity to deploy as appropriate.
Keep in mind that our company's foundation was built upon the dress category, we've been underpenetrated and athleisure compared to the market and have been making tremendous strides and closing that gap.
These gains coupled with our track record of success and dress and seasonal and so we are poised as a major power player and footwear that is able to reach a broad and attractive customer base on.
And want to reiterate that we are extremely energized by our Q1 results. We have a ways to go but we are pleased with the signs of recovery that we're seeing so far we continue to remain hopeful the vaccine rates will increase and infection rates will continue to decrease and we are looking forward to the back to school and fall season with that I will.
Turn it over to Gerry Gerry.
Thank you Roger and good afternoon, everyone.
Trends continued to improve and the first quarter across all metrics and we are very pleased with our performance as Roger mentioned, we are becoming more optimistic as the vaccine rollout continues infection rates are decreasing and our customers are coming back into our stores more frequently or.
Our targeted marketing campaigns are yielding stronger results and consumer demand is beginning to show signs of recovery and categories that were especially depressed during COVID-19, including seasonal.
Please note the financial results that we will reference during the remainder of today's call excludes certain adjustments recorded under GAAP unless specified otherwise.
A complete reconciliation of GAAP to adjusted items. Please reference our press release.
We are continuing to execute against our near term priorities outlined last year and we are seeing success build each quarter.
First quarter was an exemplary as we exceeded our expectations across the board.
This quarter, we saw our best comp performance and gross margin rates since the start of Covid and we are pleased that we were able to return to profitability this quarter.
Turning to our results for the first quarter sales increased 45, 6% to $703.2 million, which included $15.5 million and intersegment revenue that is eliminated in consolidation.
This was the best quarterly sales performance since COVID-19 began.
During the first quarter total comps were up 52, 2% versus last year's 42, 3% decline for U S. Retail comps were up 56, 3% during the first quarter versus down 42, 4% last year.
Similarly, first quarter comps were the best we have seen since the onset of COVID-19, and were driven by our continued pivot to athleisure footwear and category and which we are historically underpenetrated.
While still below 2019 levels, we saw sequential improvement and store traffic throughout the quarter.
You have heard us talk repeatedly about our pivot towards athleisure and kids footwear, and our U S retail business and our results clearly demonstrate this was the right move.
Further details can be found and our first quarter info graphic on our Investor Relations site.
During the first quarter, we saw athletic comps up 87%.
Demonstrating our strength and the category despite the impact of COVID-19.
Similarly kids comps were strong up over 78% compared to the prior year Athleisure, which includes athletic and casual was up 92% versus last year. The athleisure categories penetration continues to increase and now represents 58% of our sales this year versus 47% and the same period last.
Year.
During the quarter seasonal comps were up 56%, while dress was down 10% due to a lack of social gatherings and traveling a continued trend of working from home as a result of the continuing impact of COVID-19, and our more conservative inventory positioning.
As a reminder, the dress category remains significantly depressed during this time accounting for only 10% of our sales and the first quarter compared to 22% and 2019 across the same period.
We are excited that the seasonal business is showing signs of recovery and look forward to this segment continue on to normalize throughout the year and beyond.
We are seeing customers continue to transition their spending preferences to online and this quarter was no exception, we saw a strong performance and our e-commerce with digital demanded sales and U S retail up 13% for the quarter.
Digital demand represented 35% of total demand during the first quarter versus 49% last year. When the majority of our stores were closed, but well above first quarter 2019 level of 22%.
Turning to Canada total comps were up 10% during the first quarter on and store level comps were soft as our stores continued to be impacted by COVID-19, lockdowns and capacity restrictions that negatively impacted store performance, especially in Ontario, which represented approximately 40% of our store sales as of the end of 2019.
Despite the results and stores, we saw strong digital growth of 202% during the quarter compared to 2019.
Let's turn to our commuter group, which produces almost exclusively seasonal and dress product and has been and a difficult position.
We had been cutting back on production over the last 12 months, given the sharp decline and demand for seasonal and dress products as Roger mentioned, we planned production at kabuto down 15% for the quarter. However, following better than anticipated consumer demand early in the quarter, we were able to quickly turn on our production a key competitive advantage to our Utah.
U S retail business.
Ultimately, we increased production throughout the quarter much to the benefit of our own retail channels and ended the quarter with production up 3% year over year.
Looking forward, we are expecting second quarter production to be up 64% over last year, but remember that this is against the period when cancellations were in full swing and we were cutting production significantly.
And when we compare our production to 2019, we were down 19% and the first quarter, which is largely due to us exiting a number of smaller unprofitable brands.
We will continue to plan and <unk> production to build toward the second half of the year, primarily driven by a recovery and seasonal footwear demand.
Total net sales from <unk>, including sales to DSW were $57.4 million and the first quarter down 31% compared to the same period last year.
Wholesale sales were $48.6 million and the first quarter versus $67.5 million last year, including sales to our retail segments, which totaled approximately $14.3 million versus $16.7 million last year.
Our consolidated gross profit increased $242.6 million to $216.1 million and the first quarter versus a loss of $26.5 million and the prior year.
We were particularly pleased with our gross margin story this quarter as we saw the best quarterly performance and over 2 years.
Gross margin was better than our initial expectations given the improved sell through of seasonal inventory, which therefore required fewer markdowns, coupled with strong full price selling of athletic and kids product.
Our consolidated gross margin rate increased to 37% and the first quarter versus a loss of 5.5% and the prior year and a 100 basis point improvement over the first quarter 2019.
And our U S retail segment similar to Q4, we delivered merchandize margins that were above both last year and 2019, demonstrating the success of the assortment pivots that we've made since the onset of Covid.
We saw material leverage on our fixed occupancy and fixed cost lines versus last year, given our year over year sales improvement.
And when you couple the sales improvement with the expense reduction work, we've done since 2020, particularly on occupancy and we were actually flat to 2019 rates for occupancy and supply chain.
The return of store demand provided leverage on shipping expense versus last year, but still provides deleverage versus 2019, given the continued shift to digital demand, we're seeing from our customer.
And the U S. Gross margin was 31, 1% versus negative 8.7% last year and also improved 80 basis points to the first quarter of 2019.
Similarly, we saw strength and our Canadian operations candidates gross margin and the first quarter was 26, 7% well above last year's negative 7.9% the improvement year over year was due to improved product margin leveraging occupancy and lower inventory reserves, partially offset by higher shipping and freight cost.
<unk> gross margin rate was up 383 basis points to 28% and the first quarter versus 16, 9% last year due to liquidations and markdowns taken last year substantially better sell through and improved inventory position year over year.
Gross margin was down 380 basis points from the first quarter of 2019 due to fixed royalty deleverage. However, excluding royalty gross margin improved 160 basis points due to much cleaner inventory positions, resulting in higher release of inventory reserves.
Our inventory levels are in excellent shape, we've been investing and our tried and true popular brands that performed well regardless of the macro environment.
We have been managing our inventory levels exceptionally well, taking our cues from the customer.
At the end of the quarter, our inventory was up 1% and total compared to last year, which was below our sales increase of 46%.
On a unit basis inventory was 25% lower to last year as a result of the material markdown reserves, we had placed on our inventory at the start of Covid.
Compared to the first quarter of 2019 inventory was down 16% and total and on a unit basis down 19%.
I want to briefly discuss our inventory strategy for the spring and summer.
Given the improvement we saw on the first quarter, we are anticipating a continuing increase in demand for seasonal footwear and we have been chasing this product through our own channels that can ludo and and the broader market.
We remain flexible and nimble to follow the customer as they continue to increase their spending on apparel and footwear and begin to reengage and social occasions and events.
Moving to operating expenses and the first quarter, our adjusted SG&A was up 7.3% to $199.1 million versus last year and down 7.4% compared to 2019.
Given the significantly lower sales base, our SG&A ratio for the first quarter was 28, 3% well below last year's level of $38.4 per cent and slightly above first quarter 2019 and level of 24, 6%.
During the quarter, we did make the strategic decision to repurpose some of our avoided promotional markdown dollars into digital marketing, which as Roger mentioned was highly productive delivering the highest number of new member sign ups to our loyalty program and our company history.
As long as we continue to receive this type of productivity and are able to fund these investments with lower markdowns and I expect we will continue this approach for the foreseeable future.
Depreciation and amortization totaled $26 million and the first quarter compared to $23.1 million and the same period last year.
Adjusted operating profit for designer brands with a gain of $18.7 million and the first quarter versus a loss of $209.7 million last year, but below the $46.5 million gain and the first quarter of 2019.
We had $8.8 million of interest expense during the first quarter compared to $2.2 million and the prior year.
Moving on to taxes, our effective tax rate on adjusted results was 4.7% and the first quarter versus 38, 4% last year.
The change and rate was largely impacted by the recording of net discrete tax benefits, including adjustments to our estimated fiscal 2020 return reflecting implemented tax strategies.
This benefit contributed to the increase and our income tax receivable from $149.8 million recorded at the end of 2020 to $158.9 million at the end of the quarter, which we anticipate receiving and the back half of fiscal 2021.
It should be noted that this Q1 rate is not expected to continue for the balance of the year and in fact, the following quarters tax rates may be notably higher than prior years, given tax treatment of certain expenses when taken against actual taxable income levels.
Total weighted average diluted shares during the quarter were $77 million compared to $71.9 million last year.
For the quarter, we reported a net gain of $17 million or 22 cents per diluted share primarily impacted by the release of part of the tax valuation allowance with.
With changes to our deferred tax assets versus a net loss of $215.9 million or $3 loss per diluted share last year. Excluding this release adjusted EPS was <unk> 12 per diluted share for the quarter.
Last year, we spent a great deal of time, focusing on our liquidity position and increasing our flexibility given the volatile and uncertain conditions.
We remain pleased with our balance sheet, ending the quarter with $49.3 million of cash versus $259 million last year and had $289.9 million available to draw on our revolving credit facility, bringing our total liquidity to just under $340 million. We ended the quarter with 330 <unk>.
<unk> million dollars of debt versus $393 million last year.
During the quarter, we closed 5 stores and the U S and opened 2 new stores, resulting in 8 and a total of 516 U S stores and Canada, We closed 1 store and opened 2 new stores ending the quarter with 145 stores.
As discussed last quarter, we are closely evaluating our existing store infrastructure and have identified approximately 65 U S stores that would make sense to close upon their natural lease expirations, primarily over the next 4 years, including approximately 25 stores that we our current debt. We currently view as eligible for closure in 2000 and <unk>.
'twenty 1.
However, this number may change over time based on landlord negotiations and actual post COVID-19 store level performance versus current projections. We continue to plan to open 6 DSW stores in the U S and 2021 that were contractually committed to prior to Covid and Canada. We're currently planning to close 3 stores and <unk>.
And 3 stores and 2021.
Similar to the U S. We continue to evaluate our store fleet and Canada, as well and could see additional stores close even in 2021 as leases come up for renewal.
Given the environment. We believe it is still too uncertain to provide guidance for 2020..1. However, we wanted to provide some broad commentary on the direction of our business we.
We expect that the second quarter at DSW will show continued improvement.
Canada will see improvement, but given the government shutdowns and the recovery will be slower than in the U S.
And lastly.
<unk> production has been increasing each quarter as we continued to see increased demand for seasonal.
<unk>, especially at DSW exclusive brands and our <unk> owned and licensed brands. We are confident that our business is recovering and we should start to normalize and the second half of the year.
We are still planning our inventory conservatively, but we are prepared to make the necessary necessary inventory investments and increase production as demand returns first quarter marked our return to profitability and we believe that that trend will continue going forward driven by the strength and our athleisure and kids business, coupled with a recovery and our seasonal business.
With that we will open the call for questions operator.
Thank you.
We will now begin the question and answer question 2 on.
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At this time, we'll pause momentarily to assemble our roster.
Our first question comes from Steve Marotta with C.
C L King and associates. Please go ahead.
Good afternoon, Roger and Jared congratulations on the accelerating trends I wanted to talk to you a little bit about and focus on Komodo I think Roger you mentioned that 15 of the 25 best selling brands. During the period were the exclusive nature or or vertical. If you said the penetration. Please forgive me I missed it can you talk a little.
And about where that is right now and were without giving I know, you're not giving guidance for the balance of the year, but where you think that penetration could go.
Through the balance of the year again specific to move on and the benefits from the gross margin there. Thanks.
Thanks, Steve and it was 15 of our top 25 items.
And I was clear on that and.
We're still.
And the high single digits to low double digit penetration and.
Around our owned brands and we have aspirations as you know when we bought the business to take that to be closer to 30% and that's the direction. We're headed and again, we're really excited about the progress and how we were able to chase business during the quarter and drive margins.
Through the commodity organization. So it's working as we had planned it's now time that the business has recovered to turn it on and a bigger way.
1 additional question there has anything occurred during COVID-19 to shorten your turnaround.
Turnaround times and specific to Camino inside of W stores.
It is I would say there have been some things.
Material changes or things, we have on our roadmap, where we can leverage.
And some facilities that we have in Brazil and debt.
To test and learn and then go over and a much bigger way and accelerate production, but those are things. We're working on for the back half of the year those are not in place and a big way today, but that is the intent is speed speed speed is going to win and that is what we've got a leveraged <unk> and leverage the DSW consumer to better inform our kudo decisions.
That's really helpful. I'll take the balance of my questions offline. Thank you.
Thank you.
Our next question comes from Gabby Carbone with Deutsche Bank. Please go ahead.
Hi, good afternoon, and thanks for taking my question I was wondering if you could take and just store traffic levels, maybe a little bit more on how that progressed through the quarter and maybe what you're seeing here and a and then maybe how do you view the opportunity and our per store productivity. If you get back to 2019 levels. Thanks.
Thanks, Gabby and.
What we saw and what we've been talking about is the sequential improvement and that happened and the first quarter and it happened throughout the quarter as we progressed and our expectation is that that will continue through Q2 and the fall so.
Again, good progress what I'm really excited about is.
We knew we would not be getting after some of our.
Let's just say consumers that we knew historically had shopped our stores that shots and arms had not taken place we have not really pushed a lot of our marketing campaigns targeting that consumer and we've turned some of those things on and first quarter and we loved the response, we're getting so those are weapons that frankly, we've not been able to deploy to date.
We knew it would not be worth the spend but those are all I think opportunities as we go through the back half of the year.
Got you thanks for that and just a quick follow up are you dealing with any supply chain issues due to these like delays at the ports that money.
Yeah retailer and to have been talking about.
I think our our merchant and sourcing teams have done an amazing job of sort of managing around and I would tell you. It is not easy.
But our team has done a great job of opening up windows earlier, so the goods that.
Perhaps might have been planned for later are hitting now.
And we're doing everything we can to manage it as it is a more than a full time job from many people, but I feel good about our inventory position versus the sales we have planned and we will do everything we can to keep working with our vendor partners and this really is a big benefit of our organization is because you are a large player.
You move up closer to the top of the line as goods do come in and get allocated so again I feel pretty good about our inventory position.
Great. Thank you so much from the caller.
Thanks, Kevin.
Again, if you have a question. Please press Star then 1 at this time.
Our next question comes from Mauricio Serna with UBS. Please go ahead.
Hi, good afternoon, and thanks for taking my questions I had a question. If you could maybe talk about the second quarter. I mean, you mentioned that you expect an.
And improvement and how should we think about that considering you know compared to others.
2019 basis first quarter sales were down around 19% I mean, how should we think about that for the second quarter.
And also if you could talk a little bit more about the puts and takes into the gross margin expansion versus 2019, and how much came from.
Merchandize margins and convert to occupancy and other cost inputs. Thank you.
Yes.
I think again, we're not providing future guidance, but we anticipate.
<unk> improvement and the business just like what we have seen the acceleration in Q1, and what we experienced in Q4 as well. So that's sort of a stair step approach that we're envisioning for the balance of the year as it relates to margins. There are a couple of things that I'm really proud of that we've that we've done.
Leaning into these top 50 brands and.
Having product debt that you know the consumer demands that you do not have to take markdowns on debt has been a big win for us getting after the owned brands and a meaningful way and.
And those things again margin about 500 basis points better for us as an organization. So continuing to drive that is going to improve the business and.
It's really been exciting to be and a chase mode.
Which as I'm sitting here looking at Jared and knowing what we went through last year, where it was the complete opposite of that this was a lot more fun and creates much more margin opportunity on and upside yes..1 1 thing I will mention more ratio is if you just look at our history and and we're looking at the full year fall tends to be a couple of hundred.
This points lower merchandise margins in general and spring, just given the categories and and the promotional environment.
Holiday time period, so again, we aren't giving guidance, but I do just point you to.
What history has 4 from kind of our business model and where do you see I think it's important to that and when you look at the assortment pivot we've made and we've and athletic business that has historically run gross margin rates significantly below non athletic footwear, and we grew out political by <unk> 87 per set we are playing and the kids.
Space that has historically had and gross margin rates materially below.
Non athletic and athletic and despite the fact that those have grown at 87% and 78% as an organization. We still grew gross margin rates and that is a huge.
I cant applaud enough our design team our merchant team our planning team our allocation team our store team our marketing team for all working together to get the customer what they want when they go on it and you can avoid markdowns. It is it is.
It's something I'm really really proud of for our team.
Got it thanks a lot.
Congratulations.
Thank you.
Okay, and if you'd like to ask a question. Please press Star then 1 at this time.
Our next question comes from Dylan Carden with William Blair. Please go ahead.
Yeah, Hi, Thank you very much I was just curious as you sort of thinking about getting camilo.
And more a part of the assortment here.
And are there any changes to the strategy as it relates to the categories that you're going to move more into the assortment or just sort of how youre thinking about the integration of that business kind of coming out of the pandemic.
Thank you John.
It's a great question and yes, there is opportunity.
Especially when.
Certain brand decides.
To take their talents elsewhere, and we're going to look at how do we continue to be more athleisure like and the brands that we own and operate and I think thats.
That's upside for us as an organization, there's open to buy to be had and that space. So that's an area in particular, where we think we know we can do better.
And then I would say the growth potential that we have with.
The Jennifer Lopez brands that we're going to relaunch later this year, we think theirs on a from a fashion perspective, we think there's significant upside there and you know Vince is still a very small part of the DSW brand and doing things like what we're doing.
To create shop and shops for the big brands.
Those are the kinds of things, we're thinking about that can help us grow Vince Lucky Jessica J Lo Crown vintage mix number 6 all of those brands.
Excellent. Thank you very much.
Phil.
Okay.
This.
And with our question and answer session and I'd like to turn the conference back over to Roger Weil for any closing remarks.
Thanks, everybody for for listening in today, and if you get a chance there's a DSW consumer please check out your emails and Theres a great email to day, featuring our own CFO Jared Poff.
A great set of sneakers. So please go check out and your email from DSW and.
Really appreciate everybody listening have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.