DSW's Sole Worn Out in Q2: Fool by Numbers

On Sept. 6, DSW (NYSE: DSW) released second-quarter earnings for the period ended Aug. 4.

• Promotional events led to a strong 5.9% increase in comps and a 15.7% rise in total sales.
• Management blamed falling margins on aggressive inventory management. However, its strategy was not effective, as inventory levels ballooned 16.3% on the balance sheet.
• The company is confident that improvement is on its way, so it reiterated its previous yearly guidance of $1.63-$1.68 on 0%-3% comps.
• Despite the unfashionable results this quarter, the Motley Fool CAPS community gives the shoe company a four-star rating (out of five). Fellow competitor Collective Brands (NYSE: PSS) receives three stars, while Macy's (NYSE: M) isn't faring as well, at only two stars.

(Figures in millions, except per-share data)

Income Statement Highlights

	Q2 2007	Q2 2006	Change
Sales	$348.7	$301.3	15.7%
Net Profit	$6.5	$15.3	(57.5%)
EPS	$0.15	$0.35	(57.1%)
Diluted Shares	44.3	44.2	0.3%

Get back to basics with the income statement.

Margin Checkup

	Q2 2007	Q2 2006	Change*
Gross Margin	23.3%	28.2%	(4.9)
Operating Margin	2.4%	7.7%	(5.3)
Net Margin	1.9%	5.1%	(3.2)

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets	Q2 2007	Q2 2006	Change
Cash + ST Invest.	$175.3	$151.3	15.9%
Accounts Rec.	$12.5	$6.8	84.5%
Inventory	$258.1	$222.0	16.3%

Liabilities	Q2 2007	Q2 2006	Change
Accounts Payable	$134.0	$86.7	54.5%

The balance sheet reflects the company's health.

Cash Flow Highlights

Not posting a cash flow statement is a major fashion don't.

Related Foolishness:

• Fool on the Street: DSW's Missing Piece
• Fancy Footwork at DSW
• Shoe Carnival Trips