DSW Inc.’s 2016 acquisition of off-price online shoe retailer Ebuys Inc. has hit some rough spots.
DSW, No. 146 in the Internet Retailer 2017 Top 500, took a $52.7 million goodwill impairment charge, or write-down, on its Ebuys business during its fiscal third quarter ended Oct. 28. DSW acquired Ebuys, which sells online under ShoeMetro.com, in February 2016 for $62.5 million to help DSW expand its international footprint online.
Revenue generated from Ebuys was up 6% year over year during the third quarter and 17% through the first nine months of the fiscal year, DSW chief financial officer Jared Poff told analysts on the retail chain’s Q3 2017 earnings call on Tuesday.
“Gross profit, however, was negative for the quarter as we took substantial markdowns to move through sizable amounts of slow-moving inventories,” he said, according to a transcript from Seeking Alpha. “During the last 18 months, we have encountered challenges sustainably sourcing goods at the right cost that support the economics of its legacy business model. As such, we have revised our growth expectations assumed at the time of acquisition and have moderated our go-forward expectations for the business,” Poff said.
The retailer has installed new leadership at Ebuys but Poff did not specify who was brought in or how many Ebuys executives DSW replaced. A DSW spokeswoman did not immediately return a request for comment.
Companywide, online sales were up by 26% year over year. DSW does not specify a dollar figure for its online sales on its quarterly earnings calls.
A recent site redesign for DSW’s flagship online store holds promise heading into the final quarter of 2017, Poff said.
“Our recent site redesign, growth in drop-ship [vendors] and enhancements to inventory mobility drove a significant increase in online conversion and set new records for digital demand this quarter,” he said. “In addition, demand on our mobile sites grew at a very strong rate with the number of active monthly active users tripled [from] last year.”
For the fiscal third quarter ended Oct. 28, DSW reported:
- Net sales of $708.3 million, up 1.7% from $696.6 million during the same time last year.
- Comparable sales, including e-commerce, declined 0.4%, compared with a decline of 2.0%.
- Net income of $4.0 million compared with $39.0 million.
For the first nine months of fiscal 2017, DSW reported:
- Net sales of $2.080 billion, up 2.1% from $2.037 billion during the same time last year.
- Comparable sales, including e-commerce, declined 1.0% compared with a decline of 1.6%.
- Net income of $55.6 million compared with $94.0 million.