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I was initially surprised by the headlines out of Shoe Carnival and DSW this morning. While both hit lowered guidance, the triangulation between sales/inventories and margins were both disproportionately weak relative to what I think is happening out there as it relates to the positive Foot Locker comment yesterday.

DSW: Sales up 2.6% (on a -5.4% comp) with 3.6% inventory growth. Not terrible, until you consider that gross margins were down 4 points vs. last year. It's no wonder the CEO resigned to go to Limited.

Shoe Carnival : Sales down 2% (on a -4.9% comp) with 5% growth in inventory. Gross margin decline is less severe here - only a point vs. last year.

By my math, trading off the inventory build vs. margin puts both these guys on about the same trendline. Any way you cut it, the trendline is still bad.

Read-through considerations. SCVL's athletic business appears healthy, as the excess inventory position is driven by seasonal product like Sandals and Dress Shoes. That's good news. Similarly, the overwhelming majority of DSW's business is dress/casual shoes (i.e. non-athletic). Also, I happen to be of the view that DSW's model is structurally flawed. Big box footwear retail simply does not work. The low asset turns and weak margins associated with the underlying business have bankrupted most of DSW's predecessors. It's no surprise to me that everyone on Wall Street loves this concept and yet margins continue to fall faster than the company can lower its own standards. When doing the deep dive into DSW's lease structure - it looks spot on with Dick's (i.e., that's bad).

My point here is that despite the headlines, I'm sticking with my view on the incremental positive change in the athletic space.