10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 30, 2005

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ______________

Commission file number 1-32545

DSW INC.

(Exact name of registrant as specified in its charter)

Ohio	31-0746639
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4150 East 5th Avenue Columbus, Ohio	43219
(Address of principal executive offices)	(Zip Code)

(614) 237-7100
Registrant’s telephone number, including area code

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES       NO   X  

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES       NO   X  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES       NO   X  

The number of outstanding Class A Common Shares, without par value, as of August 31, 2005 was 16,187,801 and Class B Common Shares, without par value, as of August 31, 2005 was 27,702,667.

DSW INC.

TABLE OF CONTENTS

Part I. Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets at July 30, 2005
		and January 29, 2005	3
		Condensed Consolidated Statements of Income for the three
		and six months ended July 30, 2005 and July 31, 2004	4
		Condensed Consolidated Statements of Shareholders’ Equity
		for the six months ended July 30, 2005 and July 31, 2004	5
		Condensed Consolidated Statements of Cash Flows for the six
		months ended July 30, 2005 and July 31, 2004	6
		Notes to the Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition
		and Results of Operations	13
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
	Item 4.	Controls and Procedures	26
Part II. Other Information
	Item 1.	Legal Proceedings	27
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
	Item 3.	Defaults Upon Senior Securities	29
	Item 4.	Submission of Matters to a Vote of Security Holders	29
	Item 5.	Other Information	29
	Item 6.	Exhibits	29
Signature			30
Index to Exhibits			31
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-99

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Part I. Financial Information

Item 1. Financial Statements

DSW INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except share amounts)

	July 30,			January 29,
	2005			2005
	(unaudited)			(audited)
ASSETS
Cash and equivalents	$	42,329		$	8,339
Accounts receivable, net		3,956			2,291
Receivables from related parties		228
Advances to affiliates		30,799
Inventories		231,192			208,015
Prepaid expenses and other assets		16,088			8,940
Deferred income taxes		22,975			20,261
Total current assets		347,567			247,846
Advances to affiliates					23,676
Property and equipment, net		96,280			90,056
Goodwill		25,899			25,899
Tradenames and other intangibles, net		6,648			7,079
Deferred income taxes and other assets		1,842			881
Total assets	$	478,236		$	395,437
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$	88,697		$	72,120
Accounts payable to related parties		297
Accrued expenses:
Compensation		4,397			6,804
Taxes		9,289			12,560
Other		32,510			17,443
Total current liabilities		135,190			108,927
Long-term obligations, net of current maturities					55,000
Other noncurrent liabilities		59,120			52,684
Commitments and contingencies
Shareholders’ equity:
Class A Common Shares, no par value; 170,000,000 authorized; 16,187,375 and none issued, respectively		280,716
Class B Common Shares, no par value; 100,000,000 authorized; 27,702,667 and 27,702,667 issued, respectively					101,442
Preferred Shares, no par value; 100,000,000 authorized; no shares outstanding
Retained earnings		5,057			77,384
Deferred compensation		(1,847	)
Total shareholders’ equity		283,926			178,826
Total liabilities and shareholders’ equity	$	478,236		$	395,437

The accompanying Notes are an integral part of the Condensed Consolidated Financial Statements.

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DSW INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)

	Three months ended						Six months ended
	July 30,			July 31,			July 30,			July 31,
	2005			2004			2005			2004
Net sales	$	276,211		$	234,403		$	558,017		$	466,962
Cost of sales		(199,848	)		(167,464	)		(398,856	)		(332,436	)
Gross profit		76,363			66,939			159,161			134,526
Operating expenses		(55,675	)		(51,305	)		(123,420	)		(105,087	)
Operating profit		20,688			15,634			35,741			29,439
Interest expense, net
Non-related parties		(1,092	)		(745	)		(1,941	)		(1,471	)
Related parties		(3,920	)					(6,592	)
Earnings before income taxes		15,676			14,889			27,208			27,968
Income tax provision		(6,425	)		(5,992	)		(10,977	)		(11,255	)
Net income	$	9,251		$	8,897		$	16,231		$	16,713
Basis and diluted earnings per share:
Basic	$	0.28		$	0.32		$	0.53		$	0.60
Diluted	$	0.28		$	0.32		$	0.53		$	0.60
Shares used in per share calculations:
Basic		33,390			27,703			30,546			27,703
Diluted		33,472			27,703			30,588			27,703

The accompanying Notes are an integral part of the Condensed Consolidated Financial Statements.

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DSW INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
(unaudited)

	Number of
	Class A		Class B		Class A		Class B						Deferred
	Common		Common		Common		Common			Retained			Compensation
	Shares		Shares		Shares		Shares			Earnings			Expense			Total
Balance, January 31, 2004				27,703			$	101,442		$	42,429					$	143,871
Net income											16,713						16,713
Balance, July 31, 2004				27,703			$	101,442		$	59,142					$	160,584
Balance, January 29, 2005				27,703			$	101,442		$	77,384					$	178,826
Sale of stock		16,172			$	278,418											278,418
Net income											16,231						16,231
Dividend to parent								(101,442	)		(88,558	)					(190,000	)
Restricted stock units granted						1,887							$	(1,887	)
Amortization of deferred compensation expense														40			40
Stock units granted		15				411											411
Balance, July 30, 2005		16,187		27,703	$	280,716	$	0		$	5,057		$	(1,847	)	$	283,926

The accompanying Notes are an integral part of the Condensed Consolidated Financial Statements.

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DSW INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

	Six months ended
	July 30,			July 31,
	2005			2004
Cash flows from operating activities:
Net income	$	16,231		$	16,713
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		9,580			8,845
Amortization of debt issuance costs		553			295
Amortization of deferred compensation expense		40
Deferred income taxes		(2,532	)		(2,350	)
Loss (gain) on disposal of assets		36			(2	)
Change in working capital, assets and liabilities:
Accounts receivable		(1,893	)		(4,256	)
Inventories		(23,177	)		(36,411	)
Prepaid expenses and other assets		(8,274	)		320
Advances to/from affiliates		(7,123	)		(9,762	)
Accounts payable		16,874			12,218
Proceeds from lease incentives		4,600			5,884
Other noncurrent liabilities		1,836			2,427
Accrued expenses		9,462			1,502
Net cash provided by (used in) operating activities		16,213			(4,577	)
Cash flows from investing activities:
Capital expenditures		(15,508	)		(13,217	)
Proceeds from sale of assets		26			35
Net cash used in investing activities		(15,482	)		(13,182	)
Cash flows from financing activities:
Payments on capital lease obligations					(110	)
Proceeds from sale of stock		278,418
Payment of note to parent		(190,000	)
Net (decrease) increase in revolving credit facility		(55,000	)		20,000
Debt issuance costs		(570	)		(166	)
Grant of stock units		411
Net cash provided by financing activities		33,259			19,724
Net increase in cash and equivalents		33,990			1,965
Cash and equivalents, beginning of period		8,339			7,076
Cash and equivalents, end of period	$	42,329		$	9,041

The accompanying Notes are an integral part of the Condensed Consolidated Financial Statements.

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DSW INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	BUSINESS OPERATIONS
	DSW Inc. (“DSW”) and its wholly-owned subsidiary, DSW Shoe Warehouse, Inc. (“DSWSW”), are herein referred to collectively as DSW. Prior to December 2004, DSW was a wholly-owned subsidiary of Value City Department Stores, Inc., a wholly-owned subsidiary of Retail Ventures, Inc. (“RVI”). In December 2004, RVI completed a corporate reorganization whereby Value City Department Stores, Inc. merged with and into Value City Department Stores LLC (“Value City”), another wholly-owned subsidiary of RVI. In turn, Value City transferred all of the issued and outstanding shares of DSW to RVI in exchange for a promissory note. On June 29, 2005, DSW commenced an initial public offering (“IPO”) that closed on July 5, 2005. DSW is listed on the New York Stock Exchange trading under the symbol “DSW”.
	DSW operates in a single segment and sells better-branded footwear and accessories. As of July 30, 2005, DSW operates a total of 184 stores located throughout the United States. The DSW stores offer a wide selection of brand name and designer dress, casual and athletic footwear for men and women. DSW also operates leased shoe departments for three non-affiliated retailers under supply agreements. Under these supply agreements, DSW supplies merchandise for shoe departments in Stein Mart, Inc. (“Stein Mart”), Gordmans, Inc. (“Gordmans”) and Frugal Fannie’s Fashion Warehouse (“Frugal Fannie’s”). These agreements were entered into in July 2002, June 2004 and September 2003, respectively. Additionally, pursuant to a license agreement with Filene’s Basement, Inc. (“Filene’s Basement”) a wholly-owned subsidiary of RVI, DSW operates leased shoe departments in most Filene’s Basement stores. As of July 30, 2005, we operated 155 leased departments for Stein Mart, 51 for Gordmans, 25 for Filene’s Basement and one for Frugal Fannie’s.
	During the three months and six months ended July 30, 2005, we opened 7 and 14 new DSW stores, respectively, and re-categorized two DSW/Filene’s Basement combination locations as leased shoe departments which are included in DSW.
2.	INITIAL PUBLIC OFFERING
	On July 5, 2005, DSW closed on its IPO of 14,062,500 Class A common shares. In connection with this offering, DSW granted an option to the underwriters to purchase up to an additional 2,109,375 Class A common shares to cover over-allotments, whose option was exercised in full by the underwriters and also closed on July 5, 2005. DSW sold 16,171,875 Class A common shares raising net proceeds of $285.8 million, net of the underwriters’ commission and before estimated expenses of approximately $7.4 million. DSW used the net proceeds of the offering to repay $196.6 million of intercompany indebtedness, including interest, owed to RVI and for working capital and general corporate purposes, including the paying down of $20 million outstanding on DSW’s old secured revolving credit facility and $10 million intercompany advance. The 410.09 common shares of DSW held by RVI outstanding at January 29, 2005 were converted to 27,702,667 Class B common shares. It is the 27,702,667 Class B common shares which are being used in the prior period’s calculation of earnings per share.

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3.	BASIS OF PRESENTATION
	The accompanying unaudited interim financial statements should be read in conjunction with the final prospectus dated June 28, 2005 (the “IPO Prospectus”) included in DSW’s Registration Statement on Form S-1 (No. 333-123289).
	In the opinion of management, the unaudited interim financial statements reflect all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly the consolidated financial position and results of operations for the periods presented.
4.	STOCK BASED COMPENSATION
	DSW has various stock-based employee compensation plans. DSW accounts for those plans in accordance with Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. Accordingly, no stock-based employee compensation cost has been recognized for the fixed stock option plans. The following table illustrates the effect on net income and income per share if DSW had applied the fair value recognition of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.”

	Three months ended					Six months ended
	July 30,			July 31,		July 30,			July 31,
	2005			2004		2005			2004
	(in thousands, except per share amounts)
Net income, as reported	$	9,251		$	8,897	$	16,231		$	16,713
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax		(187	)				(187	)
Pro forma net income	$	9,064		$	8,897	$	16,044		$	16,713
Income per share:
Basic as reported	$	0.28		$	0.32	$	0.53		$	0.60
Diluted as reported	$	0.28		$	0.32	$	0.53		$	0.60
Basic pro forma	$	0.27		$	0.32	$	0.53		$	0.60
Diluted pro forma	$	0.27		$	0.32	$	0.52		$	0.60

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5.

EARNINGS PER SHARE

Basic earnings per share are based on net income and a simple weighted average of Class A and Class B common shares outstanding. Diluted earnings per share reflect the potential dilution of Class A common shares related to outstanding stock options and restricted stock units. The numerator for the diluted earnings per share calculation is net income. The denominator is the weighted average diluted shares outstanding.

	Three months ended				Six months ended
	July 30,		July 31,		July 30,		July 31,
	2005		2004		2005		2004
	(in thousands)
Weighted average shares outstanding		33,390		27,703		30,546		27,703
Assumed exercise of dilutive stock options		47				24
Restricted stock units		35				18
Number of shares for computation of dilutive earnings per share		33,472		27,703		30,588		27,703

	For the three months and six months ended July 30, 2005, all potentially dilutive stock options were dilutive. For the three months and six months ended July 31, 2004, there were no potentially dilutive instruments outstanding.
6.	ADOPTION OF ACCOUNTING STANDARDS
	The Financial Accounting Standards Board (“FASB”) periodically issues Statements of Financial Accounting Standards (“SFAS”), some of which require implementation by a date falling within or after the close of the fiscal year.
	In December 2004, the FASB issued SFAS No. 123 (revised 2004) Share-Based Payment (“SFAS No. 123R”). This statement revised SFAS No. 123, Accounting for Stock-Based Compensation, (“SFAS No. 123”) and requires a fair value measurement of all stock-based payments to employees, including grants of employee stock options and recognition of those expenses in the statements of operations. SFAS No. 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services and focuses on accounting for transactions in which an entity obtains employee services in share-based payment transactions. In addition, SFAS No. 123R will require the recognition of compensation expense over the period during which an employee is required to provide service in exchange for an award. The effective date of this standard was originally established to be interim and annual periods beginning after June 15, 2005.
	In April 2005, the SEC delayed the compliance date for SFAS No. 123R until the beginning of DSW’s 2006 fiscal year. DSW is currently evaluating the impact of this statement and has not yet determined the method of adoption under SFAS No. 123R and whether the

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	adoption will result in amounts that are similar to the pro forma disclosures currently required under SFAS No. 123, see note 4.
7.	LONG-TERM OBLIGATIONS
	In March 2005, DSW and RVI and certain of their affiliates increased the ceiling under its then-existing revolving credit facility from $350 million to $425 million. The increase of $75 million to the revolving credit facility was accomplished by amendment under substantially the same terms as the then-existing revolving credit agreement.
	In March 2005, DSW declared a dividend and issued an intercompany note to RVI in the amount of $165 million. The indebtedness evidenced by this note was scheduled to mature in March 2020 and bore interest at a rate equal to London Interbank Offered Rate, or LIBOR, plus 850 basis points per year.
	In May 2005, DSW declared an additional dividend and issued an intercompany note to RVI in the amount of $25 million. The indebtedness evidenced by this note was scheduled to mature in May 2020 and bore interest at a rate equal to LIBOR, plus 950 basis points per year.
	In July 2005, subsequent to the IPO, DSW prepaid in full, without penalty, the principal balance of both the $165 million and $25 million dividend notes, plus accrued interest of approximately $6.6 million.
	In July 2005, upon the consummation of DSW’s IPO, RVI and the lenders thereunder amended or terminated the existing credit facilities and other debt obligations of Value City and its other affiliates, including certain facilities under which DSW had rights and obligations as a co-borrower and co-guarantor and released DSW and DSWSW from their obligations as co-borrowers and co-guarantors. At the same time, DSW entered into a new $150 million secured revolving credit facility with a term of five years. Under this new facility, DSW and its subsidiary, DSWSW, are named as co-borrowers. The new secured revolving credit facility has borrowing base restrictions and provides for borrowings at variable interest rates based on LIBOR, the prime rate and the Federal Funds effective rate, plus a margin. DSW’s obligations under its new secured revolving credit facility are collateralized by a lien on substantially all of DSW’s and its subsidiary’s personal property and a pledge of all of its shares of DSWSW. In addition, this facility contains usual and customary restrictive covenants relating to its management and the operation of its business. These covenants, among other things, restrict DSW’s ability to grant liens on its assets, incur additional indebtedness, open or close stores, pay cash dividends and redeem its stock, enter into transactions with affiliates and merge or consolidate with another entity. In addition, if at any time DSW utilizes over 90% of its borrowing capacity under this facility, it must comply with a fixed charge coverage ratio test set forth in the facility documents. At July 30, 2005 DSW had no balance outstanding and was in compliance with the terms of the secured revolving credit facility

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8. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

	Six months ended
	July 30,		July 31,
	2005		2004
	(in thousands)
Cash paid during the period for:
Interest Non-related parties	$	1,468	$	1,117
Related parties		6,592
Income taxes	$	4,414	$	2,080

9.	COMMITMENTS AND CONTINGENCIES
	On March 8, 2005, RVI announced that it had learned of the theft of credit card and other purchase information from a portion of DSW customers. On April 18, 2005, RVI issued the findings from its investigation into the theft. The theft took place primarily over two weeks and covered all customers who made purchases at 108 DSW stores, primarily during a three-month period from mid-November 2004 to mid-February 2005. Transaction information involving approximately 1.4 million credit cards was obtained. For each card, the stolen information included credit card or debit card numbers, name and transaction amount. In addition, data from transactions involving approximately 96,000 checks were stolen. In these cases, checking account numbers and driver’s license numbers were obtained.
	The Company has contacted and is cooperating with federal law enforcement and other authorities with regard to this matter. To mitigate potential negative effects on its business and financial performance, the Company is working with credit card companies and issuers and trying to contact as many of its affected customers as possible. In addition, the Company worked with a leading computer security firm to minimize the risk of any further data theft. The Company is involved in several legal proceedings arising out of this incident that it believes, after consultation with counsel, are not expected to exceed the reserves the Company has currently recorded. There can be no assurance that there will not be additional proceedings or claims brought against the Company in the future.
	As of July 30, 2005, the Company estimates that the potential exposures for losses related to this theft, including exposure under currently pending proceedings, range from approximately $6.5 million to approximately $9.5 million. Because of many factors, including the early development of information regarding the theft and recoverability under insurance policies, there is no amount in the estimated range that represents a better estimate than any other amount in the range. Therefore, in accordance with Financial Accounting Standard No. 5, Accounting for Contingencies, the Company has accrued a charge to operations in the first quarter of fiscal 2005 equal to the low end of the range set forth above, or $6.5 million. As the situation develops and more information becomes available, the amount of the reserve may increase or decrease accordingly. The amount of any such change may be material.

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The Company is involved in various other legal proceedings that are incidental to the conduct of its business. The Company estimates the range of liability related to pending litigation where the amount and range of loss can be estimated. The Company records its best estimate of a loss when the loss is considered probable. Where a liability is probable and there is a range of estimated loss, the Company records the minimum estimated liability related to the claim. In the opinion of management, the amount of any liability with respect to these legal proceedings will not be material. As additional information becomes available, the Company assesses the potential liability related to its pending litigation and revises the estimates. Revisions in the Company’s estimates and potential liability could materially impact its results of operations.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As used in this Quarterly Report on Form 10-Q (this “Report”) and except as the context otherwise may require, “Company”, “we”, “us”, and “our” refers to DSW Inc. (“DSW”) and its wholly owned subsidiary, DSW Shoe Warehouse, Inc. (“DSWSW”).

Risk Factors and Safe Harbor Statement

We caution that certain information in this Form 10-Q, particularly information regarding future economic performance and finances, plans and objectives of management, is forward-looking (as such term is defined in the Private Securities Litigation Reform Act of 1995) and is subject to change based on various important factors. The following factors, among others, could cause our future financial performance in fiscal 2005 and beyond to differ materially from those expressed or implied in any such forward-looking statements. These risks and uncertainties include, without limitation:

• our continued ability to open and operate new stores on a profitable basis;

• our ability to maintain good vendor relationships;

• our ability to anticipate and respond to fashion trends and consumers preferences;

• the loss or disruption of our centralized distribution center or our failure to add additional distribution facilities;

• our continued dependence on RVI to provide us with many key services for our business;

• our failure to retain our existing management team and to continue to attract qualified new personnel;

• competition in the retail footwear industry;

• changes in economic conditions;

• risks inherent to international trade;

• security risks related to our electronic processing and transmission of confidential customer information;

• our relationship with RVI and Schottenstein Stores Corporation (“SSC”); and

• other factors set forth in Exhibit 99 attached hereto.

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Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with generally accepted accounting principles, or GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and judgments, including, but not limited to, those related to inventory valuation, depreciation, amortization, recoverability of long-lived assets (including intangible assets), estimates for self insurance reserves for health and welfare, workers’ compensation and casualty insurance, income taxes, contingencies, litigation and revenue recognition. We base these estimates and judgments on our historical experience and other factors we believe to be relevant, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The process of determining significant estimates is fact-specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and in some cases, actuarial and appraisal techniques. We constantly re-evaluate these significant factors and make adjustments where facts and circumstances dictate.

While we believe that our historical experience and other factors considered provide a meaningful basis for the accounting policies applied in the preparation of the consolidated statements, we cannot guarantee that our estimates and assumptions will be accurate. As the determination of these estimates requires the exercise of judgment, actual results inevitably will differ from those estimates, and such differences may be material to our financial statements.

We believe the following represent the most significant accounting policies, critical estimates and assumptions, among others, used in the preparation of our consolidated financial statements:

• Revenue Recognition. Revenues from merchandise sales are recognized at the point of sale and are net of returns and exclude sales tax. Revenue from gift cards is deferred and the revenue is recognized upon redemption of the gift cards.

• Cost of Sales and Merchandise Inventories. Merchandise inventories are stated at the lower of cost, determined using the first-in, first-out basis, or market, using the retail inventory method. The retail inventory method is widely used in the retail industry due to its practicality. Under the retail inventory method, the valuation of inventories at cost and the resulting gross profit are calculated by applying a calculated cost to retail ratio to the retail value of inventories. The cost of the inventory reflected on our consolidated balance sheet is decreased by charges to cost of sales at the time the retail value of the inventory is lowered through the use of markdowns. Accordingly, earnings are negatively impacted as merchandise is marked down prior to sale. Reserves to value inventory at the lower of cost or market were $17.6 million on July 30, 2005 and $14.2 million at January 29, 2005.

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	Inherent in the calculation of inventories are certain significant management judgments and estimates, including setting the original merchandise retail value or mark-on, markups of initial prices established, reductions in prices due to customers’ perception of value (known as markdowns), and estimates of losses between physical inventory counts, or shrinkage, which, combined with the averaging process within the retail inventory method, can significantly impact the ending inventory valuation at cost and the resulting gross profit.
	We include in the cost of sales expenses associated with warehousing, distribution and store occupancy. Warehousing costs are comprised of labor, benefits and other labor-related costs associated with the operations of the warehouse, which are primarily payroll-related taxes and benefits. The non-labor costs associated with warehousing include rent, depreciation, insurance, utilities and maintenance and other operating costs that are passed to us from the landlord. Distribution costs include the transportation of merchandise to the warehouse and from the warehouse to our stores. Store occupancy costs include rent, utilities, repairs, maintenance and janitorial costs and other costs associated with licenses and occupancy-related taxes, which are primarily real estate taxes passed to us by our landlords.
•	Asset Impairment and Long-lived Assets. We must periodically evaluate the carrying amount of our long-lived assets, primarily property and equipment, and finite life intangible assets when events and circumstances warrant such a review to ascertain if any assets have been impaired. The carrying amount of a long-lived asset is considered impaired when the carrying value of the asset exceeds the expected future cash flows (undiscounted and without interest) from the asset. Our reviews are conducted down at the lowest identifiable level, which include a store. The impairment loss recognized is the excess of the carrying value, based on discounted future cash flows, of the asset over its fair value. Should an impairment loss be realized, it will be included in operating expenses. Assets acquired for stores that have been previously impaired are not capitalized when acquired if the store’s expected future cash flow (undiscounted and without interest) remains negative. The amount of impairment losses recorded in fiscal 2004 was $0.9 million, all of which was recorded in the fourth quarter.
	We believe at this time that the long-lived assets’ carrying values and useful lives continue to be appropriate. To the extent these future projections or our strategies change, our conclusion regarding asset impairment may differ from our current estimates.
•	Self-insurance Reserves. We record estimates for certain health and welfare, workers compensation and casualty insurance costs that are self-insured programs. These estimates are based on actuarial assumptions and are subject to change based on actual results. Should the total cost of claims for health and welfare, workers compensation and casualty insurance exceed those anticipated, reserves recorded may not be sufficient, and, to the extent actual results vary from assumptions, earnings would be impacted.

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• Customer Loyalty Program. We maintain a customer loyalty program for our DSW stores in which customers receive a future discount on qualifying purchases. The “Reward Your Style” program is designed to promote customer awareness and loyalty and provide us with the ability to communicate with our customers and enhance our understanding of their spending trends. Upon reaching the target spending level, customers may redeem these discounts on a future purchase. Generally, these future discounts must be redeemed within six months. We accrue the estimated costs of the anticipated redemptions of the discount earned at the time of the initial purchase and charge such costs to operating expense based on historical experience. The estimates of the costs associated with the loyalty program require us to make assumptions related to customer purchase levels and redemption rates. The accrued liability as of July 30, 2005 and January 29, 2005 was $6.2 million and $4.5 million, respectively. To the extent assumptions of purchases and redemption rates vary from actual results, earnings would be impacted.

• Income Taxes. We are required to determine the aggregate amount of income tax expense to accrue and the amount which will be currently payable based upon tax statutes of each jurisdiction we do business in. In making these estimates, we adjust income based on a determination of generally accepted accounting principles for items that are treated differently by the applicable taxing authorities. Deferred tax assets and liabilities, as a result of these differences, are reflected on our balance sheet for temporary differences that will reverse in subsequent years. A valuation allowance is established against deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized. If our management had made these determinations on a different basis, our tax expense, assets and liabilities could be different.

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Results of Operations

As of July 30, 2005, we operated 184 DSW stores and leased shoe departments in 32 states, and leased shoe departments in 155 Stein Mart stores, 51 Gordmans stores, 25 Filene’s Basement stores and one Frugal Fannie’s store. We manage our operations as one segment. The following table represents selected components of our historical consolidated results of operations, expressed as percentages of net sales:

	Three months ended						Six months ended
	July 30,			July 31,			July 30,			July 31,
	2005			2004			2005			2004
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		(72.4	)		(71.4	)		(71.5	)		(71.2	)
Gross profit		27.6			28.6			28.5			28.8
Operating expenses		(20.1	)		(21.9	)		(22.1	)		(22.5	)
Operating profit		7.5			6.7			6.4			6.3
Interest expense, net		(1.8	)		(0.3	)		(1.5	)		(0.3	)
Earnings before income taxes		5.7			6.4			4.9			6.0
Income tax provision		(2.3	)		(2.6	)		(2.0	)		(2.4	)
Net income		3.4	%		3.8	%		2.9	%		3.6	%

THREE MONTHS ENDED JULY 30, 2005 COMPARED TO THREE MONTHS ENDED JULY 31, 2004

Net Sales. Net sales for the thirteen week period ended July 30, 2005 increased by 17.8%, or $41.8 million, to $276.2 million from $234.4 million in the thirteen week period ended July 31, 2004. Our comparable store sales in the second quarter of fiscal 2005 improved 3.3% compared to the second quarter of fiscal 2004. After accounting for the recategorization of two DSW/Filene’s Basement combination stores from DSW stores to leased shoe departments in the first quarter of fiscal 2005, the increase includes a net increase of 26 new DSW stores, 10 non-affiliated leased shoe departments and five Filene’s Basement leased shoe departments in the second quarter of fiscal 2005. The new DSW store locations added $30.4 million in sales compared to the second quarter of fiscal 2004, while the new leased shoe departments added $2.2 million. Leased shoe department sales comprised 10.6% of total net sales in the second quarter of fiscal 2005, compared to 9.2% in the second quarter of fiscal 2004.

Compared with the second quarter of fiscal 2005, DSW comparable store sales increased in women’s 4.3%, athletic 7.4% and men’s 0.3%, and decreased in the accessories category by 8.0%. Sales increases in women’s category were driven by increases in the dress and seasonal classes, while the increase in athletic category was the result of an increase in the fashion class. The decrease in accessories category was the result of declines in all classes of accessories.

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Gross Profit. Gross profit increased $9.5 million to $76.4 million in the second quarter of fiscal 2005 from $66.9 million in the second quarter of fiscal 2004, and decreased as a percentage of net sales from 28.6% in the second quarter of fiscal 2004 to 27.6% in the second quarter of fiscal 2005. The decrease is primarily attributable to increased markdowns caused by higher average unit retails in our clearance, additional markdowns in our accessory category and an increase in our occupancy expense. These negative factors were partially offset by an increase in our initial markups and a decrease in our warehouse expense. Warehouse expense as a percentage of net sales decreased from 2.1% in the second quarter of fiscal 2004 to 1.4% in the second quarter of fiscal 2005. The decrease in warehouse expense is the result of improved operational efficiencies achieved through the use of electronic shipping information, increased unit volumes and a higher allocation of warehouse expense to Value City’s shoe operations pursuant to the shared services agreement between the Company and RVI that became effective as of January 30, 2005. The store occupancy expense increased from 12.5% of net sales in the second quarter of fiscal 2004 to 13.4% of net sales in the second quarter of fiscal 2005. The increase in store occupancy is the result of increases in lease expense for new stores and leased departments.

Operating Expenses. For the second quarter of fiscal 2005, operating expenses increased $4.4 million from $51.3 million in the second quarter of fiscal 2004 to $55.7 million in the second quarter of fiscal 2005, which represented 21.9% and 20.1% of net sales, respectively. Operating expenses for the second quarter of fiscal 2005 include $2.0 million in pre-opening costs compared to $1.6 million in the second quarter of fiscal 2004. Pre-opening costs are expensed as incurred and therefore do not necessarily reflect expenses for the stores opened in a given fiscal period. Included in operating expenses is the related operating cost, excluding occupancy, associated with operating the leased shoe departments. The new DSW stores and leased shoe departments added $5.1 million in expenses compared to the second quarter of fiscal 2004, excluding pre-opening expenses.

Operating Profit. Operating profit was $20.7 million in the second quarter of fiscal 2005 compared to $15.6 million in the second quarter of fiscal 2004, and increased as a percentage of net sales from 6.7% in the second quarter of fiscal 2004 to 7.5% in the second quarter of fiscal 2005. Operating profit as a percentage of net sales was positively affected by the leveraging of our store operating expenses, including marketing.

Interest Expense. Interest expense, net of interest income, increased $4.3 million to $5.0 million for the second quarter of fiscal 2005 from $0.7 million for the second quarter of fiscal 2004. Included in interest expense is $3.9 million of interest due to RVI related to $190.0 million of indebtedness incurred to fund two separate dividends. The indebtedness, which was fully paid in July 2005, was evidenced by a $165.0 million note that bore interest at a rate equal to LIBOR plus 850 basis points and a $25.0 million note that bore interest at a rate equal to LIBOR plus 950 basis points. The interest expense also reflects higher weighted average borrowing rates related to the dividend notes and the write-off of unamortized debt issuance costs of $0.4 million for our old revolving credit facility. Interest expense includes the amortization of debt issuance costs of $0.1 million in each of the second quarters of fiscal 2005 and 2004.

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Income Taxes. Our effective tax rate for the second quarter of fiscal 2005 was 41.0%, compared to 40.2% for the second quarter of fiscal 2004. The increase in the quarter was the result of the write off of approximately $0.6 million of deferred tax assets no longer deductible as a result of changes in state tax regulations in Ohio.

Net Income. For the second quarter of fiscal 2005, net income increased $0.4 million or 4.0% over the second quarter of fiscal 2004 and represents 3.4% versus 3.8% of net sales, respectively and was the results of the operating factors described above.

SIX MONTHS ENDED JULY 30, 2005 COMPARED TO SIX MONTHS ENDED JULY 31, 2004

Net Sales. Net sales for the six-month period ended July 30, 2005 increased by 19.5%, or $91.0 million, to $558.0 million from $467.0 million in the six-month period ended July 31, 2004. Our comparable store sales in the six-month period of fiscal 2005 improved 3.9% compared to the six-month period of fiscal 2004. After accounting for the recategorization of two DSW/Filene’s Basement combination stores from DSW stores to leased shoe departments in the six-month period ended July 30, 2005, the increase includes a net increase of 26 new DSW stores, 10 non-affiliated leased shoe departments and five Filene’s Basement leased shoe departments in the fiscal 2005 six-month period. The new DSW store locations added $55.9 million in sales compared to the fiscal 2004 six-month period, while the new leased shoe departments added $4.0 million. Leased shoe department sales comprised 10.7% of total net sales in the first six-month period of fiscal 2005, compared to 9.0% in the same six-month period of fiscal 2004.

For the six-month period ended July 30, 2005, as compared with same six-month period in fiscal 2004, DSW comparable store sales increased in women’s 3.5%, athletic 9.8% and men’s 2.6%, and decreased in the accessories category by 5.6%. Sales increases in women’s and men’s categories were driven by increases in the dress and casual classes, while the increase in athletic category was the result of the improvement in the fashion class. The men’s increase was driven by increases in casual and fashion classes. The decrease in accessories category was the result of declines in all classes of accessories.

Gross Profit. Gross profit increased $24.7 million to $159.2 million in the six-month period ended July 30, 2005 from $134.5 million in the same six-month period of fiscal 2004, and decreased as a percentage of net sales from 28.8% in the fiscal 2004 six-month period to 28.5% in the fiscal 2005 six-month period. The decrease is attributable to increased markdowns in our accessory category, higher average unit retail across all categories and an increase in our occupancy expense. These negative factors were partially offset by an increase in our initial markups and a decrease in our warehouse expense. Warehouse expense as a percentage of net sales decreased from 2.3% in the fiscal 2004 six-month period to 1.5% in the fiscal 2005 six-month period. The decrease in warehouse expense is the result of improved operational efficiencies achieved through the use of electronic shipping information, increased unit volumes and a higher allocation of warehouse expense to Value City’s shoe operations pursuant to the shared services agreement. The store occupancy increased from 12.2% of net sales in the fiscal 2004 six-month period to 13.0% of net sales in the fiscal 2005 six-month period. The increase in store occupancy is the result of increases in lease expense for new stores and leased departments.

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Operating Expenses. For the six-month period ended July 30, 2005, operating expenses increased $18.3 million from $105.1 million in the fiscal 2004 six-month period to $123.4 million in the fiscal 2005 six-month period, which represented 22.5% and 22.1% of net sales, respectively. Operating expenses for the fiscal 2005 six-month period includes $3.5 million in pre-opening costs compared to $4.5 million in the same six-month period in fiscal 2004. Pre-opening costs are expensed as incurred and, therefore, do not necessarily reflect expenses for the stores opened in a given fiscal period. Included in operating expenses is the related operating cost associated with operating the leased shoe departments, excluding occupancy. The new DSW stores and leased shoe departments added $9.8 million in expenses compared to the same six-month period of fiscal 2004, excluding pre-opening expenses.

During the six-month period ended July 30, 2005, we accrued an estimated liability related to the theft of credit card and other purchase information. Potential exposures for losses related to stolen information were estimated to fall within a range of approximately $6.5 million to approximately $9.5 million. Because of many factors, including the early development of information regarding the theft and recoverability under insurance policies, there is no amount in the estimated range that represents a better estimate than any other amount in the range. Therefore, in accordance with Financial Accounting Standard No. 5, Accounting for Contingencies, the Company has accrued a charge to operations equal to the low end of the range set forth above, or $6.5 million.

Operating Profit. Operating profit was $35.7 million in the six-month period of fiscal 2005 compared to $29.4 million in the six-month period of fiscal 2004, and increased as a percentage of net sales from 6.3% in the six-month period of fiscal 2004 to 6.4% in the six-month period of fiscal 2005. Operating profit as a percentage of net sales was positively affected by the leveraging of our store operating expenses, including marketing over the previous fiscal year which was offset in part by the estimate for our potential losses related to the theft of credit card and other purchase information.

Interest Expense. Interest expense, net of interest income, increased $7.0 million to $8.5 million for the first six-month period of fiscal 2005 from $1.5 million for the same six-month period of fiscal 2004. Included in interest expense is $6.6 million of interest due to RVI related to $190.0 million of indebtedness incurred to fund two separate dividends. The indebtedness, which was fully paid in July 2005, was evidenced by a $165.0 million note that bore interest at a rate equal to LIBOR plus 850 basis points and a $25.0 million note that bore interest at a rate equal to LIBOR plus 950 basis points. The interest expense also reflects higher weighted average borrowing rates related to the dividend notes and the write-off of unamortized debt issuance costs of $0.4 million for our old revolving credit facility. Interest expense includes the amortization of debt issuance costs of $0.2 million in each of the six-month periods of fiscal 2005 and 2004.

Income Taxes. Our effective tax rate for the six-month period of fiscal 2005 was 40.3%, compared to 40.2% for the six-month period of fiscal 2004. The increase in the six-month period was the result of the write off of $0.6 million of deferred tax assets no longer deductible as a result of changes in state tax regulations in Ohio.

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Net Income. For the six-month period ended July 30, 2005, net income decreased $0.5 million or 2.9% over the six-month period ended July 31, 2004 and represents 2.9% versus 3.6% of net sales, respectively and was the results of the operating factors described above.

Liquidity and Capital Resources

Our primary ongoing cash requirements are for seasonal and new store inventory purchases, capital expenditures in connection with our expansion, the remodeling of existing stores and infrastructure growth. We have historically funded our expenditures with cash flows from operations and borrowings under the Value City credit facilities to which we have been a party, as described below. Our working capital and inventory levels typically build seasonally. We believe that we will be able to continue to fund our operating requirements and the expansion of our business pursuant to our growth strategy in the future with cash flows from operations and borrowings under the new DSW secured revolving credit facility.

For the twenty-six week period ended July 30, 2005, our net cash provided by operations was $16.2 million, compared to $4.6 million used in operations for the twenty-six week period ended July 31, 2004. Net working capital increased $73.5 million to $212.4 million at July 30, 2005 from $138.9 million at January 29, 2005, primarily due to increased investing with respect to new DSW stores, new leased shoe departments opened in fiscal 2005 and the classification of advances to affiliates to current. Current assets divided by current liabilities at January 29, 2005 and July 30, 2005 was 2.3 and 2.6, respectively.

Net cash provided by operating activities during the twenty-six week period ended July 30, 2005 reflects several causes, primarily the increase of accounts payable of $16.9 million and the increase of accrued expenses of $9.5 million, partially offset by the increase in inventory of $23.2 million.

For the twenty-six week period ended July 30, 2005, net cash used in investing activities amounted to $15.5 million compared to $13.2 million for the corresponding period of fiscal 2004. For the twenty-six week period ended July 30, 2005 net cash used in investing activities consisted of capital expenditures, related primarily to new stores.

Our future capital expenditures will depend primarily on the number of new stores we open, the number of existing stores we remodel and the timing of these expenditures. In fiscal 2004, we opened 31 new DSW stores and closed one DSW store. We plan to open approximately 30 stores per year in each of the four years from fiscal 2005 through fiscal 2008. During fiscal 2004, the average investment required to open a typical new DSW store was approximately $1.7 million. Of this amount, gross inventory typically accounted for approximately $880,000, fixtures and leasehold improvements typically accounted for approximately $600,000 (prior to tenant allowances) and pre-opening advertising and other pre-opening expenses typically accounted for approximately $250,000. We plan to finance investment in new stores with cash flows from operating activities and by drawing from our $150 million secured revolving credit facility when necessary.

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For the twenty-six week period ended July 30, 2005, our net cash provided by financing activities was $33.3 million, compared to $19.7 million for the corresponding period in fiscal 2004.

The Value City Revolving Credit Facility. On July 5, 2005, the Company was released from its obligation as co-borrower and co-guarantor under a Loan and Security Agreement, as amended originally entered into in June 2002. The Company, Value City and other RVI affiliates were named as co-borrowers, and RVI is a co-guarantor. This revolving credit agreement allowed DSW and the other Value City affiliates named as co-borrowers to draw on a $425 million revolving credit facility, subject to applicable borrowing base restrictions. All the capital stock of DSW and DSWSW was pledged. The Company, RVI and the other co-borrowers and guarantors named therein were jointly and severally liable for all liabilities incurred under the agreement.

At January 29, 2005, $108.5 million was available under this revolving credit facility. Direct borrowings by us aggregated $55.0 million as of January 29, 2005 while $14.9 million letters of credit were issued and outstanding as of January 29, 2005.

The DSW Secured Revolving Credit Facility. Upon consummation of the IPO on July 5, 2005, DSW and DSWSW were released from any obligations under the pre-existing revolving credit facility and entered into a new $150 million secured revolving credit facility with a term of five years. Under this new facility, DSW and DSWSW are named as co-borrowers. This new DSW facility has borrowing base restrictions and provides for borrowings at variable interest rates based on LIBOR, the prime rate and the Federal Funds effective rate, plus a margin. The new secured revolving credit facility is secured by a lien on substantially all the personal property of DSW and DSWSW and a pledge of all of the shares of DSWSW. In addition, this facility contains usual and customary restrictive covenants relating to our management and the operation of the business. These covenants, among other things, restrict the Company’s ability to grant liens on its assets, incur additional indebtedness, open or close stores, pay cash dividends and redeem its stock, enter into transactions with affiliates and merge or consolidate with another entity. In addition, if at any time the Company utilizes over 90% of its borrowing capacity under this facility, it must comply with a fixed charge coverage ratio test set forth in the facility documents.

At July 30, 2005, $131.1 million was available under this revolving credit facility. The Company had no direct borrowings as of July 30, 2005 while $18.9 million letters of credit were issued and outstanding as of July 30, 2005.

The Value City Term Loan Facility. Until the amendment of the term loan agreement in July 2005 in connection with the IPO, DSW and DSWSW were also co-borrowers under a Financing Agreement, as amended, among Cerberus, as agent, and other parties named therein, originally entered into in June 2002. Under the terms of this term loan agreement, Cerberus and SSC each provided to the Company, Value City and other RVI affiliates a separate $50 million three-year term loan comprised of two tranches. As a co-borrower, we were jointly and severally liable for the performance and payment of obligations under this financing agreement; however, this indebtedness has not been reflected in our financial statements as it was recorded on the books of RVI.

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In July 2005, DSW and DSWSW were released from their obligations as co-borrowers pursuant to the amendment of this term loan agreement, and Value City repaid all the term loan indebtedness. In connection with the amendment of this term loan agreement, RVI agreed to amend the outstanding warrants to provide SSC, Cerberus and Back Bay the right, from time to time, in whole or in part, to (i) acquire RVI common shares at the then current conversion price (subject to the existing anti-dilution provisions), (ii) acquire from RVI Class A common shares of DSW at the IPO price of $19.00 per share, (subject to anti-dilution provisions similar to those in the existing warrants), or (iii) acquire a combination thereof.

SSC and Cerberus would each receive 328,915 Class A common shares of DSW, and Back Bay would receive 41,989 Class A common shares of DSW, if they were to exercise the warrants in full exclusively for DSW common shares. These warrants expire in June 2012. Although RVI does not intend or plan to undertake a spin-off of common shares to RVI shareholders, in the event that RVI were to effect such a spin-off in the future, the holders of outstanding unexercised warrants would receive the same number of DSW common shares that they would have received had they exercised their warrants in full for RVI common shares immediately prior to the record date of the spin-off, without regard to any limitation on exercise contained in the warrants. Following the completion of any such spin-off, the warrants will be exercisable solely for RVI common shares.

On July 5, 2005, DSW entered into an exchange agreement with RVI whereby, DSW is required to exchange some or all of the DSW Class B common shares held by RVI for DSW Class A common shares. SSC and Cerberus have the right to require that DSW register for resale the Class A common shares issued to them upon exercise of their warrants in specified circumstances, and each of these entities and Back Bay will be entitled to participate in the registrations initiated by the other entities. The Company’s failure to perform its obligations under the registration rights agreement relating to these shares would result in an event of default under the Value City senior loan facility.

The Value City Senior Subordinated Convertible Loan Facility. Until July 2005, DSW and DSWSW were also co-guarantors of a $75 million loan under an Amended and Restated Senior Subordinated Convertible Loan Agreement, as amended, entered into with Cerberus, as agent and lender, SSC, as lender, and the other parties named therein, which was convertible at the option of the lenders into common shares of RVI at an initial conversion price of $4.50 per share. This indebtedness has not been reflected in our financial statements as it was recorded on the books of RVI.

In July 2005, DSW and DSWSW were released from their obligations as co-guarantors pursuant to the amendment and restatement of this agreement. We have been advised by RVI that Value City repaid $25 million of this facility in July 2005. The $75 million convertible loan was converted into a non-convertible loan, and the capital stock of DSW held by RVI will continue to secure the amended loan facility. In addition, in connection with the amendment and restatement of this convertible loan agreement, RVI has issued to SSC and Cerberus convertible warrants which will be exercisable from time to time until the later of June 11, 2007 and the repayment in full of Value City’s obligations under the amended and restated loan agreement.

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Under the convertible warrants, SSC and Cerberus will have the right, from time to time, in whole or in part, to (i) acquire RVI common shares at the conversion price referred to in the convertible loan (subject to existing anti-dilution provisions), (ii) acquire from RVI Class A common shares of DSW at an exercise price per share at the IPO price of $19.00 per share (subject to anti-dilution provisions similar to those in the existing warrants) or (iii) acquire a combination thereof. Although RVI does not intend or plan to undertake a spin-off of common shares to RVI shareholders, in the event that RVI were to effect such a spin-off in the future, the holders of outstanding unexercised warrants would receive the same number of DSW common shares that they would have received had they exercised their warrants in full for RVI common shares immediately prior to the record date of the spin-off, without regard to any limitation on exercise contained in the warrants. Following the completion of any such spin-off, the warrants will be exercisable solely for RVI common shares.

SSC and Cerberus may acquire, upon exercise of the warrants in full, an aggregate number of Class A common shares of DSW from RVI which, at the IPO price of $19.00 per share, would have a value equal to $75 million. SSC and Cerberus would each receive 1,973,685 Class A common shares if they were to exercise these warrants exclusively for DSW common shares.

Cross-Corporate Guarantees. We have historically entered into cross-corporate guarantees with various financing institutions pursuant to which we, RVI, Filene’s Basement and Value City, jointly and severally, guarantee payment obligations owed to these entities under factoring arrangements they have entered into with vendors who may provide merchandise to some or all of RVI’s subsidiaries. In connection with the IPO, these cross-corporate guarantees were terminated and we have neither outstanding balance nor potential liabilities under these past arrangements.

Contractual Obligations

DSW had outstanding letters of credit that totaled approximately $18.9 million at July 30, 2005 on the DSW secured revolving credit facility and $14.9 million at January 29, 2005 on the Value City revolving credit facility. If certain conditions are met under these arrangements, the Company would be required to satisfy the obligations in cash. Due to the nature of these arrangements and based on historical experience, DSW does not expect to make any significant payment outside of terms set forth in these arrangements.

As of July 30, 2005, we have entered into various construction commitments, including capital items to be purchased for projects that were under construction, or for which a lease has been signed. Our obligations under these commitments aggregated to approximately $0.6 million as of July 30, 2005. In addition, we have signed lease agreements for new store locations with annual rent of approximately $8.2 million. In connection with the new lease agreements, we will receive approximately $5.8 million of tenant allowances, which will reimburse us for expenditures at these locations.

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We operate all our stores, warehouses and corporate office space from leased facilities. Lease obligations are accounted for either as operating leases or as capital leases.

On July 5, 2005, subsequent to the IPO, we paid in full the principal balance of both the $165 and $25 million dividend notes plus accrued interest of approximately $6.6 million to RVI, $20 million outstanding on the Company’s old secured revolving credit facility and a $10 million intercompany advance from RVI used to pay down on the outstanding old credit facility borrowing.

Off-Balance Sheet Arrangements

The Company does not intend to participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as special purpose entities or variable interest entities, which would facilitate off-balance sheet arrangements or other limited purposes. As of July 30, 2005, the Company has not entered into any “off-balance sheet” arrangements, as that term is described by the SEC.

ADOPTION OF ACCOUNTING STANDARDS

The Financial Accounting Standards Board (“FASB”) periodically issues Statements of Financial Accounting Standards (“SFAS”), some of which require implementation by a date falling within or after the close of the fiscal year.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123R”). This statement revised SFAS No. 123, Accounting for Stock-Based Compensation, (“SFAS No. 123”) and requires a fair value measurement of all stock-based payments to employees, including grants of employee stock options and recognition of those expenses in the statements of operations. SFAS No. 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services and focuses on accounting for transactions in which an entity obtains employee services in share-based payment transactions. In addition, SFAS No. 123R will require the recognition of compensation expense over the period during which an employee is required to provide service in exchange for an award. The effective date of this standard was originally established to be interim and annual periods beginning after June 15, 2005. In April 2005, the SEC delayed the compliance date for SFAS No. 123R until the beginning of the Company’s fiscal year 2006. The Company is currently evaluating the impact of this statement and has not yet determined the method of adoption under SFAS No. 123R and whether the adoption will result in amounts that are similar to the pro forma disclosures required under SFAS No. 123.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company has been exposed to market risk from changes in interest rates, which may adversely affect its financial condition, results of operations and cash flows. In seeking to minimize the risks from interest rate fluctuations, the Company manages exposures through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company does not use financial instruments for trading or other speculative purposes and is not party to any leveraged financial instruments.

The Company is exposed to interest rate risk primarily through its borrowings under its new secured revolving credit facility. At July 30, 2005, no direct borrowings were outstanding under this facility. The secured revolving credit facility permits debt commitments up to $150 million, includes a letter of credit facility, extends for a term of five years, and provides for borrowings at variable interest rates.

A hypothetical 100 basis point increase in the interest rate of the debt outstanding under the Value City revolving credit facility (prior to July 5, 2005) or the DSW new secured revolving credit facility (after July 5, 2005) for the twenty-six week period ended July 30, 2005, net of income taxes, would have had an approximate $0.1 million impact on our results of operations for such period.

Item 4. Controls and Procedures

The Company, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, performed an evaluation of the Company’s disclosure controls and procedures, as contemplated by Securities Exchange Act Rule 13a-15. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded, as of the end of the period covered by this report, that such disclosures and procedures were effective.

No change in the Company’s internal control over financial reporting occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonable likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

On March 8, 2005, RVI announced that it had learned of the theft of credit card and other purchase information from a portion of DSW customers. On April 18, 2005, RVI issued the findings from its investigation into the theft. The theft took place primarily over two weeks and covered all customers who made purchases at 108 DSW stores, primarily during a three-month period from mid-November 2004 to mid-February 2005. Transaction information involving approximately 1.4 million credit cards was obtained. For each card, the stolen information included credit card or debit card numbers, name and transaction amount. In addition, data from transactions involving approximately 96,000 checks were stolen. In these cases, checking account numbers and driver’s license numbers were obtained.

The Company has contacted and is cooperating with federal law enforcement and other authorities with regard to this matter. To mitigate potential negative effects on its business and financial performance, the Company is working with credit card companies and issuers and trying to contact as many of its affected customers as possible. In addition, the Company worked with a leading computer security firm to minimize the risk of any further data theft. The Company is involved in several legal proceedings arising out of this incident that it believes, after consultation with counsel, are not expected to exceed the reserves the Company has currently recorded. There can be no assurance that there will not be additional proceedings or claims brought against the Company in the future.

As of July 30, 2005, the Company estimates that the potential exposures for losses related to this theft, including exposure under currently pending proceedings, ranges from approximately $6.5 million to approximately $9.5 million. Because of many factors, including the early development of information regarding the theft and recoverability under insurance policies, there is no amount in the estimated range that represents a better estimate than any other amount in the range. Therefore, in accordance with Financial Accounting Standard No. 5, Accounting for Contingencies, the Company has accrued a charge to operations in the first quarter of fiscal 2005 equal to the low end of the range set forth above. As the situation develops and more information becomes available, the amount of the reserve may increase or decrease accordingly. The amount of any such change may be material.

Although difficult to quantify, since the announcement of the theft, the Company has not discerned any material negative effect on sales trends it believes are attributable to the theft. However, this may not be indicative of the long-term developments regarding this matter.

-27-

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) Not applicable.

(b) Use of Proceeds

On June 29, 2005, DSW commenced its initial public offering, which was consummated on July 5, 2005 with the sale of 16,171,875 Class A common shares, including 2,109,375 Class A common shares sold pursuant to the exercise of the underwriters’ over-allotment option. The managing underwriter of the offering was Lehman Brothers Inc.

The Class A common shares sold in the offering were registered under the Securities Act of 1933, as amended, on registration statement (No. 333-123289) on Form S-1 filed with the Securities and Exchange Commission on March 14, 2005, as amended (the “Registration Statement”). The Securities and Exchange Commission declared the Registration Statement effective on June 28, 2005. The Registration Statement registered 16,171,875 Class A common shares at a maximum aggregate offering price of $307,265,625, all of which was sold at a price to the public of $19.00 per share.

The aggregate gross proceeds to DSW from the Class A common shares sold by DSW were approximately $307.3 million. The net proceeds to DSW from the offering were approximately $278.4 million after deducting the underwriting discount of $21.5 million and $7.4 million of other expenses incurred in connection with the offering. A reasonable estimate for the amount of expenses incurred has been provided where actual expenses are not yet known. None of such payments were to directors, officers, ten percent stockholders or affiliates of the issuer.

DSW received the net proceeds from the initial public offering on July 5, 2005. DSW used approximately $196.6 million of the net proceeds to repay intercompany indebtedness and accrued interest then owed RVI, DSW’s majority shareholder, under a $165 million dividend note and a $25 million dividend note, $51.8 million for working capital and $30 million for general corporate purposes, including paying down $20 million outstanding on DSW’s old secured revolving credit facility and a $10 million intercompany advance from RVI used to pay down on the outstanding old credit facility borrowing on July 1, 2005. Reasonable estimates for the amounts have been provided where actual expenses are not yet known. Pending these uses, DSW has invested the net proceeds from the initial public offering in short-term, interest-bearing, investment-grade securities.

-28-

(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table provides information with respect to purchases DSW made of its common shares during the second quarter of the 2005 fiscal year, if any:

Issuer Purchases of Equity Securities

			Total number of	Maximum number of
			shares purchased as	shares that may yet
			part of publicly	be purchased under
	Total number of	Average price	announced plans or	the plans or
	shares purchased	paid per share	programs	programs
May 1, 2005 – May 28, 2005	None	—	—	None
May 29, 2005 – July 2, 2005	None	—	—	None
July 3, 2005 – July 30, 2005	None	—	—	None
Total	None	—	—	None

Item 3. Defaults Upon Senior Securities. None.

Item 4. Submission of Matters to a Vote of Security Holders. None.

Item 5. Other Information. None.

Item 6. Exhibits

See Index to Exhibits on page 31.

-29-

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DSW INC. (Registrant)
Date: September 8, 2005	By:	/s/ Douglas J. Probst
		Douglas J. Probst
		Chief Financial Officer

-30-

INDEX TO EXHIBITS

Exhibit Number	Description
10.1	Form of Restricted Stock Units Award Agreement for Employees
10.2	Form of Nonqualified Stock Option Award Agreement for Employees
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer
99	Safe Harbor Under the Private Securities Litigation Reform Act of 1995

-31-

EX-10.1

                                                                    Exhibit 10.1

          THIS FORM OF AWARD AGREEMENT IS PART OF A PROSPECTUS COVERING
      SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933

                                    DSW INC.
                           2005 EQUITY INCENTIVE PLAN
                         FORM OF RESTRICTED STOCK UNITS
                                 AWARD AGREEMENT
             GRANTED TO ____________________ ON ____________________

DSW Inc. ("Company") and its shareholders believe that their business interests
are best served by extending to you an opportunity to earn additional
compensation based on the growth of the Company's business. To this end, the
Company and its shareholders adopted the DSW Inc. 2005 Equity Incentive Plan
("Plan") as a means through which you may share in the Company's success. If you
satisfy the conditions described in this Agreement (and the Plan), your Award
will mature into common shares of the Company.

This Award Agreement describes many features of your Award and the conditions
you must meet before you may receive the value associated with your Award. To
ensure you fully understand these terms and conditions, you should:

     -    Read the Plan and the Plan's Prospectus carefully to ensure you
          understand how the Plan works;

     -    Read this Award Agreement carefully to ensure you understand the
          nature of your Award and what you must do to earn it; and

     -    Contact DSW's Vice President, Human Resources at (614) 238-5781 if you
          have any questions about your Award.

Also, NO LATER THAN _______________, you must return a signed copy of the Award
Agreement to:

          Katie Maurer
          Vice President, Human Resources
          DSW
          4150 East Fifth Avenue
          Columbus, Ohio 43219

If you do not do this, your Award will be revoked automatically as of the Grant
Date and you will not be entitled to receive anything on account of the
retroactively revoked Award.

Section 409A of the Internal Revenue Code ("Section 409A") imposes substantial
penalties on persons who receive some forms of deferred compensation (see the
Plan's Prospectus for more information about these penalties). Your Award has
been designed to avoid these penalties. However, because the Internal Revenue
Service has not yet issued rules fully defining the effect of Section 409A, it
may be necessary to revise your Award Agreement if you are to avoid these
penalties. As a condition of accepting this Award, you must agree to accept
those revisions, without any further consideration, even if those revisions
change the terms of your Award and reduce its value or potential value.


                                        1



                              NATURE OF YOUR AWARD

You have been granted Restricted Stock Units ("RSUs"). If you satisfy the
conditions described in this Award Agreement, your RSUs will be converted to an
equal number of shares of Company stock. Federal income tax rules apply to RSUs.
These and other conditions affecting your RSUs are described in this Award
Agreement, the Plan and the Plan's Prospectus, all of which you should read
carefully.

NO LATER THAN _______________ you must return a signed copy of this Award
Agreement to:

          Katie Maurer
          Vice President, Human Resources
          DSW
          4150 East Fifth Avenue
          Columbus, Ohio 43219

If you do not do this, your Award will be revoked automatically as of the Grant
Date and you will not be entitled to receive anything on account of the
retroactively revoked Award.

GRANT DATE: Your RSUs were issued on _______________.

This is the date you begin to earn your Award.

NUMBER OF RSUS: You have been granted _____ RSUs. The conditions that you must
meet before the Award matures into shares of Company stock are discussed below
in the section titled "When Your Award Will Be Settled."

                         WHEN YOUR AWARD WILL BE SETTLED

NORMAL SETTLEMENT DATE: Normally, your RSUs will be converted automatically and
_____ shares of Company stock will be distributed to you if you are actively
employed on _______________. However, your RSUs may be settled earlier in the
circumstances described in the next section.

HOW YOUR RSUS MIGHT BE SETTLED EARLIER THAN THE NORMAL SETTLEMENT DATE: Your
RSUs will be settled automatically and _____ shares of Company stock will be
distributed to you if, before the Normal Settlement Date:

     -    Your employment terminates because of death, disability (as defined in
          the Plan) or retirement (i.e., you terminate after reaching age 65 and
          completing at least five years of employment); or

     -    There is a Change in Control (as defined in the Plan).

HOW YOUR RSUS MAY BE FORFEITED: You will forfeit any RSUs if, before the Normal
Settlement Date and before a Change in Control, you terminate employment
voluntarily (for reasons other than death, disability or retirement) or if you
are involuntarily terminated by the Company for any reason before the Normal
Settlement Date (and you are not disabled or eligible for retirement).


                                        2



Also, you will forfeit your RSUs if:

     -    You materially fail to substantially perform your position or duties;

     -    You engage in illegal or grossly negligent conduct that is materially
          injurious to the Company or any Related Entity (as defined in the
          Plan);

     -    You materially violate any law or regulation governing the Company or
          any Related Entity;

     -    You commit a material act of fraud or dishonesty which has had or is
          likely to have a material adverse effect upon the Company's (or any
          Related Entity's) operations or financial conditions;

     -    You materially breach the terms of any other agreement (including any
          employment agreement) with the Company or any Related Entity; or

     -    You breach any term of the Plan or this Award Agreement.

Also, if you terminate your employment (or your employment is terminated) for
any reason other than those just listed (including death, disability and
retirement) and the Company subsequently discovers that you actively concealed
an act, event or failure that is within those just listed and the Company could
not have discovered that act, event or failure through reasonable diligence
before your termination, you will be required to repay to the Company the full
value you received under this Award.

                               SETTLING YOUR AWARD

If all applicable conditions have been met, your RSUs will be settled
automatically. At that time, you will receive one share of Company stock for
each RSU you have earned.

                        OTHER RULES AFFECTING YOUR AWARD

RIGHTS BEFORE YOUR RSUS ARE SETTLED: Until your RSUs are settled, you may not
exercise any voting rights associated with the shares underlying your RSUs. Nor
will you be entitled to receive any dividends with respect to those shares.

BENEFICIARY DESIGNATION: You may name a Beneficiary or Beneficiaries to receive
any RSUs to be settled after you die. This may be done only on the attached
Beneficiary Designation Form and by following the rules described in that form.
If you die without making an effective Beneficiary designation, the RSUs subject
to this Award will be converted to shares and distributed to your surviving
spouse or, if you do not have a surviving spouse, to your estate.

TAX WITHHOLDING: Income taxes must be withheld when your Award is settled and
before your shares actually are distributed to you (see the Plan's Prospectus
for a discussion of the tax treatment of your Award). These taxes may be paid in
one of several ways. They are:


                                        3



     -    The Company may withhold this amount from other amounts owed to you
          (e.g., from your salary).

     -    You may pay these taxes by giving the Company a check (payable to "DSW
          Inc.") in an amount equal to the taxes that must be withheld.

     -    By having the Company withhold a portion of the shares that otherwise
          would be distributed as of the Settlement Date. The number of shares
          withheld will have a fair market value equal to the taxes that must be
          withheld.

     -    You may give the Company other shares of Company stock (that you have
          owned for at least six months) with a value equal to the taxes that
          must be withheld.

You may choose the approach you prefer, although the Company may reject your
preferred method for any reason (or for no reason). If this happens, the Company
will specify (from among the alternatives just listed) how these taxes are to be
paid.

If you do not choose a method of paying these taxes within 30 days of the
Settlement Date, the Company will withhold a portion of the shares that
otherwise would be distributed. The number of shares withheld will have a fair
market value equal to the taxes that must be withheld and the balance of the
shares will be distributed to you.

TRANSFERRING YOUR RSUS: Normally, your RSUs may not be transferred to another
person. However, you may complete a Beneficiary Designation Form to name the
person to receive any RSUs settled after you die. Also, the Committee may allow
you to place your RSUs into a trust established for your benefit or the benefit
of your family. Contact DSW's Vice President, Human Resources at (614) 238-5781
or at the address given below if you are interested in doing this.

GOVERNING LAW: This Award Agreement will be construed in accordance with and
governed by the laws of the United States and the laws of the State of Ohio
(other than laws governing conflicts of laws).

NON COMPETITION: In consideration of receiving this Award, you agree for one
year after terminating employment with the Company or any Related Entity not,
directly or indirectly, to accept employment with, act as a consultant to, or
otherwise perform services that are substantially the same or similar to those
for which you were compensated by the Company or any Related Entity (this
comparison will be based on job-related functions and responsibilities and not
on job title) for any business that directly competes with the Company's
business, which is understood to be the sale of off-price and discount
merchandise, including discount and off-price shoes and accessories.
Illustrations of business that compete with the Company's business include: The
TJX Companies, Inc. (T.J. Maxx; Marshall's; HomeGoods; A.J.Wright; Marmaxx;
Winners); Shoe Carnival; MJM Designer Shoes; Ross Stores, Inc.; Payless
ShoeSource; Off-Broadway Shoes; Famous Footwear; Footstar; Big Lots Stores,
Inc.; and Burlington Coat Factory Warehouse Corporation and any of its
affiliates. This restriction applies to any parent, division, affiliate, newly
formed or purchased business(es) and/or successor of a business that competes
with the Company's business.


                                        4



SOLICITATION OF EMPLOYEES: In consideration of receiving this Award, you agree
that during your employment, and for two years after terminating employment with
the Company or any Related Entity [1] not, directly or indirectly, to solicit
any employee of the Company or any Related Entity to leave employment with the
Company or any Related Entity, [2] not, directly or indirectly, to employ or
seek to employ any employee of the Company or any Related Entity and [3] not to
cause or induce the Company's or any Related Entity's competitors to solicit or
employ any employee of the Company or any Related Entity.

SOLICITATION OF THIRD PARTIES: In consideration of receiving this Award, you
agree that during your employment, and for two years after terminating
employment with the Company or any Related Entity not, directly or indirectly,
to recruit, solicit or otherwise induce or influence any customer, supplier,
sales representative, lender, lessor, lessee or any other person having a
business relationship with the Company or any Related Entity to discontinue or
reduce the extent of that relationship except in the course of discharging your
duties to the Company or any Related Entity and with the good faith objective of
advancing the Company's or any Related Entity's business interests.

NON-DISPARAGEMENT: In consideration of receiving this Award, you and the Company
(on its behalf and on behalf of each Related Entity) agree that neither will
make any disparaging remarks about the other and you will not make any
disparaging remarks about the Company's Chairman, Chief Executive Officer or any
of the Related Entities' senior executives. However, this section will not
preclude [1] any remarks that may be made by you pursuant to a lawfully-served
subpoena or court order or that are required to discharge your duties to the
Company or any Related Entity or [2] the Company from making (or eliciting from
any person) disparaging remarks about you concerning any conduct that may lead
to a termination for Cause (as defined in the Plan) (including initiating an
inquiry or investigation that may result in a termination for Cause), but only
to the extent reasonably necessary to investigate your conduct and to protect
the Company's and the Related Entities' interests.

OTHER AGREEMENTS: Also, your RSUs will be subject to the terms of any other
written agreements between you and the Company.

ADJUSTMENTS TO YOUR RSUS: Your RSUs will be adjusted, if appropriate, to reflect
any change to the Company's capital structure (e.g., the number of your RSUs
will be adjusted to reflect a stock split).

OTHER RULES: Your RSUs also are subject to more rules described in the Plan and
in the Plan's Prospectus. You should read both these documents carefully to
ensure you fully understand all the conditions of this Award.

                           TAX TREATMENT OF YOUR AWARD

The federal income tax treatment of your RSUs is discussed in the Plan's
Prospectus which you should read carefully.

                                      *****


                                        5



You may contact DSW's Vice President, Human Resources at (614) 238-5781 or at
the address given below if you have any questions about your Award or this Award
Agreement.

                                      *****

                     YOUR ACKNOWLEDGMENT OF AWARD CONDITIONS

NOTE: You must sign and return a copy of this Award Agreement to DSW's Vice
President, Human Resources at the address given below NO LATER THAN ___________.

By signing below, I acknowledge and agree that:

     -    A copy of the Plan has been made available to me;

     -    I have received a copy of the Plan's Prospectus;

     -    I understand and accept the conditions placed on my Award and
          understand what I must do to earn my Award;

     -    I will consent (in my own behalf and in behalf of my Beneficiaries and
          without any further consideration) to any change to my Award or this
          Award Agreement to avoid paying penalties under Section 409A of the
          Internal Revenue Code, even if those changes affect the terms of my
          Award and reduce its value or potential value; and

     -    If I do not return a signed copy of this Award Agreement to the
          address shown below before _______________, my Award will be revoked
          automatically as of the date it was granted and I will not be entitled
          to receive anything on account of the retroactively revoked Award.

- --------------------


- ----------------------------------------
(signature)

Date signed:
             ---------------------------

A signed copy of this form must be sent to the following address NO LATER THAN
_____________:

          Katie Maurer
          Vice President, Human Resources
          DSW
          4150 East Fifth Avenue
          Columbus, Ohio 43219

                                      *****


                                        6



                      COMMITTEE'S ACKNOWLEDGMENT OF RECEIPT

A signed copy of this Award Agreement was received on ______________.


By:
    ---------------------------------
                    :
- --------------------

     _____ Has complied with the conditions imposed on the grant and the Award
     and the Award Agreement remains in effect; or

     _____ Has not complied with the conditions imposed on the grant and the
     Award and the Award Agreement are revoked as of the Grant Date because
     ________________________________________________________________
     describe deficiency

DSW Inc. 2005 Equity Incentive Plan Committee


By:
    ---------------------------------
Date:
      -------------------------------

NOTE: Send a copy of this completed form to ____________________ and keep a copy
as part of the Plan's permanent records.


                                        7



                                    DSW INC.
                           2005 EQUITY INCENTIVE PLAN
                          BENEFICIARY DESIGNATION FORM

RELATING TO RESTRICTED STOCK UNITS ISSUED TO ________________ ON _____________

                      INSTRUCTIONS FOR COMPLETING THIS FORM

You may use this form to [1] name the person you want to receive any amount due
under the DSW Inc. 2005 Equity Incentive Plan after your death or [2] change the
person who will receive these benefits.

There are several things you should know before you complete this form.

FIRST, if you do not elect another Beneficiary, any amount due to you under the
Plan when you die will be paid to your surviving spouse or, if you have no
surviving spouse, to your estate.

SECOND, your election will not be effective (and will not be implemented) unless
you sign this form.

THIRD, your election will be effective only if and when this form is completed
properly and returned to DSW's Vice President, Human Resources at the address
given below.

FOURTH, all elections will remain in effect until they are changed (or until all
death benefits are paid).

FIFTH, if you designate your spouse as your Beneficiary but are subsequently
divorced from that person (or your marriage is annulled), your Beneficiary
designation will be revoked automatically.

SIXTH, if you have any questions about this form or if you need additional
copies of this form, please contact DSW's Vice President, Human Resources at
(614) 238-5781 or at the address given below.

                         1.00 DESIGNATION OF BENEFICIARY

1.01 PRIMARY BENEFICIARY:

I designate the following persons as my Primary Beneficiary or Beneficiaries to
receive any shares of DSW stock due after my death under the terms of the Award
Agreement described at the top of this form. These shares will be allocated, in
the proportion specified, to:

     ______% to ________________________________________________________________
                     (Name)                                       (Relationship)

     Address: __________________________________________________________________


                                       8



     ______% to ________________________________________________________________
                     (Name)                                       (Relationship)

     Address: __________________________________________________________________

     ______% to ________________________________________________________________
                     (Name)                                       (Relationship)

     Address: __________________________________________________________________

     ______% to ________________________________________________________________
                     (Name)                                       (Relationship)

     Address: __________________________________________________________________

1.02 CONTINGENT BENEFICIARY

IF ONE OR MORE OF MY PRIMARY BENEFICIARIES DIES BEFORE I DIE, I DIRECT THAT any
shares of DSW stock due after my death under the terms of the Award Agreement
described at the top of this form:

     _____ Be allocated to my other named Primary Beneficiaries in proportion to
     the allocation given above (ignoring the interest allocated to the deceased
     Primary Beneficiary); or

     _____ Be distributed among the following Contingent Beneficiaries.

     ______% to ________________________________________________________________
                     (Name)                                       (Relationship)

     Address: __________________________________________________________________

     ______% to ________________________________________________________________
                     (Name)                                       (Relationship)

     Address: __________________________________________________________________

     ______% to ________________________________________________________________
                     (Name)                                       (Relationship)

     Address: __________________________________________________________________

     ______% to ________________________________________________________________
                     (Name)                                       (Relationship)

     Address: __________________________________________________________________

                                      ****


                                       9



ELECTIONS MADE ON THIS FORM WILL BE EFFECTIVE ONLY AFTER THIS FORM IS RECEIVED
BY DSW'S VICE PRESIDENT, HUMAN RESOURCES AND ONLY IF IT IS FULLY AND PROPERLY
COMPLETED AND SIGNED.

Name:
      --------------------------------------------------------------------------
Soc. Sec. No.:
               -----------------------------------------------------------------
Date of Birth:
               -----------------------------------------------------------------
Address:
         -----------------------------------------------------------------------

- --------------------------------------------------------------------------------

Sign and return this form to DSW's Vice President, Human Resources at the
address given below.


- -------------------------------------   ----------------------------------------
Date                                    Signature

Return this signed form to DSW's Vice President, Human Resources at the
following address:

          Katie Maurer
          Vice President, Human Resources
          DSW
          4150 East Fifth Avenue
          Columbus, Ohio 43219

Received on:
             ------------------------


By:
    ---------------------------------


                                       10

EX-10.2

                                                                    Exhibit 10.2

          THIS FORM OF AWARD AGREEMENT IS PART OF A PROSPECTUS COVERING
        SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
                                      1933

                                    DSW INC.
                           2005 EQUITY INCENTIVE PLAN

                        FORM OF NONQUALIFIED STOCK OPTION
                                 AWARD AGREEMENT
                         GRANTED TO ________ ON ________

DSW Inc. ("Company") and its shareholders believe that their business interests
are best served by extending to you an opportunity to earn additional
compensation based on the growth of the Company's business. To this end, the
Company and its shareholders adopted the DSW Inc. 2005 Equity Incentive Plan
("Plan") as a means through which you may share in the Company's success. If you
satisfy the conditions described in this Agreement (and the Plan), your Award
will mature into an opportunity to buy common shares of the Company.

This Award Agreement describes many features of your Award and the conditions
you must meet before you may receive the value associated with your Award. To
ensure you fully understand these terms and conditions, please complete these
steps:

     -    Read the Plan and the Plan's Prospectus carefully to ensure you
          understand how the Plan works;

     -    Read this Award Agreement carefully to ensure you understand what you
          must do to earn your Award; and

     -    Contact DSW's Vice President, Human Resources at (614) 238-5781 if you
          have any questions about your Award.

Also, NO LATER THAN ________________, please return a signed copy of this Award
Agreement to:

          Katie Maurer
          Vice President, Human Resources
          DSW
          4150 East Fifth Avenue
          Columbus, Ohio 43219

If a signed Award Agreement is not received by the due date, your Award will be
revoked automatically as of the Grant Date and you will not be entitled to
receive any amount on account of the retroactively revoked Award.

Section 409A of the Internal Revenue Code ("Section 409A") imposes substantial
penalties on persons who receive some forms of deferred compensation (see the
Plan's Prospectus for more information about these penalties). Your Award has
been designed to avoid these penalties. However, because the Internal Revenue
Service has not yet issued rules fully defining the effect of Section 409A, it
may be necessary to revise your Award Agreement if you are to avoid these


                                        1



penalties. As a condition of accepting this Award, you must agree to accept
those revisions, without any further consideration, even if those revisions
change the terms of your Award and reduce its value or potential value.

                              NATURE OF YOUR AWARD

You have been granted Nonqualified Stock Options ("NQSOs") which you may
exercise to purchase common shares of the Company but only if you satisfy the
conditions described in this Award Agreement and pay the Exercise Price
specified below. Federal income tax rules apply to NQSOs. These and other
conditions affecting your NQSOs are described in this Award Agreement, the Plan
and the Plan's Prospectus, all of which you should read carefully.

NO LATER THAN ____________________, you must return a signed copy of this Award
Agreement to:

          Katie Maurer
          Vice President, Human Resources
          DSW
          4150 East Fifth Avenue
          Columbus, Ohio 43219

Your Award will be revoked automatically as of the Grant Date if a signed Award
Agreement is not received by the due date.

GRANT DATE: Your NQSOs were issued on ______________.

This is the date you begin to earn the right to buy common shares of the Company
through your NQSOs.

NUMBER OF NQSOS:  You have been granted ______ NQSOs.

You may buy one common share of the Company for each NQSO granted but only if
you meet the conditions described in this Award Agreement and in the Plan.

            WHEN YOU MAY EXERCISE YOUR AWARD AND WHEN IT WILL EXPIRE

NORMAL VESTING DATE: You may begin to exercise your NQSOs when they vest. Your
NQSOs will vest in 20% increments (and may be exercised) if you are actively
employed on the anniversary each year of your original grant date. Your grant
will be 100% vested on ____________. This does not mean that you must exercise
all your NQSOs on this date; this is merely the first date that you may do so.
However, your NQSOs will expire unless they are exercised before ____________,
the Expiration Date.

HOW YOUR NQSOS MIGHT VEST (AND BE EXERCISABLE) EARLIER THAN THE NORMAL VESTING
DATE: Regardless of the normal vesting schedule just given, your NQSOs will be
vested (and may be exercised) if, before the Normal Vesting Date:

     -    Your employment terminates because of death, disability (as defined in
          the Plan) or retirement (i.e., you terminate after reaching age 65 and
          completing at least five years of employment); or


                                        2



     -    There is a Change in Control (as defined in the Plan).

HOW YOUR NQSOS MAY BE FORFEITED: You will forfeit your unvested NQSOs if, before
the Normal Vesting Date and before a Change in Control, you terminate employment
voluntarily or if you are involuntarily terminated by the Company for any reason
before the Normal Vesting Date (and you are not then disabled or eligible for
retirement).

Also, you will forfeit your NQSOs if:

     -    You materially fail to substantially perform your position or duties;

     -    You engage in illegal or grossly negligent conduct that is materially
          injurious to the Company or any Related Entity (as defined in the
          Plan);

     -    You materially violate any law or regulation governing the Company or
          any Related Entity;

     -    You commit a material act of fraud or dishonesty which has had or is
          likely to have a material adverse effect upon the Company's (or any
          Related Entity's) operations or financial conditions;

     -    You materially breach the terms of any other agreement (including any
          employment agreement) with the Company or any Related Entity; or

     -    You breach any term of the Plan or this Award Agreement.

Also, if you terminate your employment (or your employment is terminated) for
any reason other than those just listed (including death, disability and
retirement) and the Company subsequently discovers that you actively concealed
an act, event or failure that is within those just listed and the Company could
not have discovered that act, event or failure through reasonable diligence
before your termination, you will be required to repay to the Company the full
value you received under this Award.

                              EXERCISING YOUR AWARD

There are specific procedures you must follow to exercise an NQSO; you must
follow these procedures in order for your exercise to be completed.

When you buy a common share of the Company by exercising an NQSO, the option
exercised is cancelled and no more shares may be bought through the cancelled
option.

EXPIRATION DATE: Normally, your NQSOs will expire on (and may not be exercised
after) ____________. However, there are other limits on how long you have to
exercise your NQSOs after you terminate employment. Under these rules:

     -    If you terminate employment because of death, disability or
          retirement, you (or your Beneficiary) may exercise your vested NQSOs
          for one year after your termination, but not later than ____________;


                                        3



     -    If you are terminated for cause (as defined in the Plan), all of your
          NQSOs are forfeited and may not be exercised; or

     -    If you terminate for any other reason, you may exercise your NQSOs for
          three months after your termination, but not later than ____________.

If you do not exercise your NQSOs before these dates, they will expire and may
not be exercised at a later date.

EXERCISE PRICE: Your purchase is $______ for each common share of the Company
you buy when you exercise an NQSO.

MINIMUM NUMBER OF NQSOS THAT YOU MAY EXERCISE: The smallest number of NQSOs that
you may exercise at any one time is 100 or, if fewer, the total number of your
outstanding vested NQSOs.

Also, you may not exercise any NQSO to buy a fractional common share of the
Company; an NQSO to purchase a fractional share will be converted to an NQSO to
purchase a whole share.

PROCEDURES FOR EXERCISING YOUR NQSOS: To exercise an NQSO, you must:

     -    Complete a copy of the Nonqualified Stock Option Exercise Notice
          attached to this Award Agreement (additional copies are available from
          DSW's Vice President, Human Resources at (614) 238-5781 or at the
          address given below); and

     -    Pay the Exercise Price (i.e., $_____) for each NQSO being exercised.

This must be done before ___________, when your NQSOs expire (see section titled
"When You May Exercise Your Award and When It Will Expire" above).

You may pay the Exercise Price in one of three ways. These are:

     -    By check in the amount of the Exercise Price ($_____) multiplied by
          the number of NQSOs being exercised. This check must be made payable
          to "DSW Inc." In this case, and as soon as administratively
          practicable, the Company will issue you a number of shares equal to
          the number of NQSOs you are exercising.

     -    Through a cashless exercise. In this case, the difference between the
          fair market value of the shares subject to the NQSO being exercised
          will be applied to pay the Exercise Price. If you elect this
          alternative, you will not have to spend any cash to exercise your
          NQSOs but you will receive fewer shares than if you pay the Exercise
          Price in cash.

     -    Through an attestation process, which is available only if you have
          owned other common shares of the Company for at least six months
          before the NQSOs are exercised. In this case, the fair market value of
          your other shares will be applied to pay the Exercise Price. If you
          elect this alternative, you will not have to spend any


                                        4



          cash to exercise your NQSOs but you also will receive fewer shares
          than if you pay the Exercise Price in cash.

It is impossible now to calculate the effect of a cashless exercise or the
attestation process on the number of shares you will receive when your NQSOs are
exercised. If you intend to use either the cashless exercise or attestation
process to exercise your NQSOs, you must contact DSW's Vice President, Human
Resources when you complete the Nonqualified Stock Option Exercise Notice to be
sure you understand the effect of these forms of exercise.

                        OTHER RULES AFFECTING YOUR AWARD

RIGHTS BEFORE EXERCISE: Until you exercise your NQSOs, you may not exercise any
voting rights associated with the shares underlying your NQSOs. Nor will you be
entitled to receive any dividends with respect to those shares.

BENEFICIARY DESIGNATION: You may name a Beneficiary or Beneficiaries to exercise
any vested NQSOs that are unexercised when you die. This may be done only on the
attached Beneficiary Designation Form and by following the rules described in
that form. If the Company does not have an effective Beneficiary designation on
file, your Beneficiary will be automatically your surviving spouse or, if you do
not have a surviving spouse, your estate.

TAX WITHHOLDING: Income taxes must be withheld on the difference between the
Exercise Price and the value of each share of stock you purchase when your
exercise an NQSO (see the Plan's Prospectus for a discussion of the tax
treatment of your Award). These taxes may be paid in one of several ways. They
are:

     -    The Company may withhold this amount from other amounts owed to you
          (e.g., from your salary).

     -    You may pay these taxes by giving the Company a check (payable to "DSW
          Inc.") in an amount equal to the taxes that must be withheld.

     -    By having the Company withhold a portion of the shares that you
          otherwise would receive on the exercise date. The number of shares
          withheld will have a fair market value equal to the taxes that must be
          withheld.

     -    You may give the Company other shares of Company stock (that you have
          owned for at least six months) with a value equal to the taxes that
          must be withheld.

You choose the approach you prefer, based on approval by the Company.

If you do not choose a method of paying these taxes within 30 days of the
exercise date, the Company will automatically withhold a portion of the shares
that otherwise would be distributed. The number of shares withheld will have a
fair market value equal to the taxes that must be withheld and the balance of
the shares will be distributed to you.


                                        5



TRANSFERRING YOUR NQSOS: Normally, your NQSOs may not be transferred to another
person. However, you may complete a Beneficiary Designation Form to name the
person who may exercise your NQSOs in the event of your death. Also, the
Committee may allow you to place your NQSOs into a trust established for your
benefit or for the benefit of your family. Contact DSW's Vice President, Human
Resources at (614) 238-5781 or at the address given below if you are interested
in doing this.

GOVERNING LAW: This Award Agreement will be construed in accordance with and
governed by the laws of the United States and of the State of Ohio (other than
laws governing conflicts of laws).

[NON - COMPETITION: In consideration of receiving this Award, you agree for one
year after terminating employment with the Company or any related entity, not
directly or indirectly, to accept employment with, act as a consultant to, or
otherwise perform services that are substantially the same or similiar to those
for which you were compensated by the Company or any Related Entity (this
comparison will be based on job-related functions and responsibilities and not
on job title) for any business that directly competes with the Company's
business, which is understood to be the sale of off-price and discount
merchandise, including discount and off-price shoes and accessories.
Illustrations of businesses that compete with the Company's business include:
The TJX Companies, Inc. (T.J. Max; Marshall's; HomeGoods; A.J. Wright; Marmaxx;
Winners); Shoe Carnival; MJM Designer Shoes; Ross Stores, Inc.; Payless
ShoeSource; Off-Broadway Shoes; Famous Footwear; Footstar; Big Lots Stores,
Inc.; and Burlington Coat Factory Warehouse Corporation and any of its
affiliates. This restriction applies to any parent, division, affiliate,
newly-formed or purchased business(es) and/or successor of a business that
competes with the Companys business.] [This paragraph is included in all
Nonqualified Stock Option Award Agreements covering grants of 1,000 or more
stock options].

SOLICITATION OF EMPLOYEES: In consideration of receiving this Award, you agree
that during your employment, and for one year after terminating employment with
the Company or any Related Entity [1] not, directly or indirectly, to recruit,
solicit any employee of the Company or any Related Entity to leave employment
with the Company or any Related Entity, [2] not, directly or indirectly, to
employ or seek to employ any employee of the Company or any Related Entity and
[3] not to cause or induce the Company's or any Related Entity's competitors to
solicit or employ any employee of the Company or any Related Entity.

SOLICITATION OF THIRD PARTIES: In consideration of receiving this Award, you
agree that during your employment, and for one year after terminating employment
with the Company or any Related Entity not, directly or indirectly, to recruit,
solicit or otherwise induce or influence any customer, supplier, sales
representative, lender, lessor, lessee or any other person having a business
relationship with the Company or any Related Entity to discontinue or reduce the
extent of that relationship except in the course of discharging your duties to
the Company or any Related Entity and with the good faith objective of advancing
the Company's or any Related Entity's business interests.

NON- DISPARAGEMENT: In consideration of receiving this Award, you and the
Company (on its behalf and on behalf of each Related Entity) agree that neither
will make any disparaging remarks about the other and you will not make any
disparaging remarks about the Company's Chairman, Chief Executive Officer or any
of the Related Entities' senior executives. However, this section will not
preclude [1] any remarks that may be made by you pursuant to a lawfully-served
subpoena or court order or that are required to discharge your duties to the
Company or any Related Entity or [2] the Company from making (or eliciting from
any person) disparaging remarks about you concerning any conduct that may lead
to a termination for cause (as defined in the Plan) (including initiating an
inquiry or investigation that may result in a termination for cause), but only
to the extent reasonably necessary to investigate your conduct and to protect
the Company's and the Related Entities' interests.

OTHER AGREEMENTS: Also, your NQSOs will be subject to the terms of any other
written agreements between you and the Company.

ADJUSTMENTS TO NQSOS: Your Award will be adjusted, if appropriate, to reflect
any change to the Company's capital structure (e.g., the number of your NQSOs
and the Exercise Price will be adjusted to reflect a stock split).


                                        6



OTHER RULES: Your NQSOs also are subject to more rules described in the Plan and
in the Plan's Prospectus. You should read both these documents carefully to
ensure you fully understand all the terms and conditions of this Award.

                           TAX TREATMENT OF YOUR AWARD

The federal income tax treatment of your NQSOs is discussed in the Plan's
Prospectus.

                                      *****

You may contact DSW's Vice President, Human Resources at (614) 238-5781 or at
the address given below if you have any questions about your Award or this Award
Agreement.

                                      *****

                     YOUR ACKNOWLEDGMENT OF AWARD CONDITIONS

Note: You must sign and return a copy of this Award Agreement to DSW's Vice
President, Human Resources at the address given below NO LATER THAN
_________________.

By signing below, I acknowledge and agree that:

     -    A copy of the Plan has been made available to me;

     -    I have received a copy of the Plan's Prospectus;

     -    I understand and accept the conditions placed on my Awards and
          understand what I must do to earn and exercise my Award;

     -    I will consent (in my own behalf and in behalf of my beneficiaries and
          without any further consideration) to any change to my Award or this
          Award Agreement to avoid paying penalties under Section 409A of the
          Internal Revenue Code, even if those changes affect the conditions of
          my Award and reduce its value or potential value; and

     -    If I do not return a signed copy of this Award Agreement to the
          address shown below before ________________, my Award will be revoked
          automatically as of the date it was granted and I will not be entitled
          to receive any amount on account of the retroactively revoked Award.


                                        7



- --------------------


- -------------------------------------
(signature)

Date signed:
             ------------------------

A signed copy of this form must be sent to the following address NO LATER THAN
______________________:

          Katie Maurer
          Vice President, Human Resources
          DSW
          4150 East Fifth Avenue
          Columbus, Ohio 43219

                                      *****

                      COMMITTEE'S ACKNOWLEDGMENT OF RECEIPT

A signed copy of this Award Agreement was received on ______________.


By:
    ---------------------------------

- -------------------------------------

     _____ Has complied with the conditions imposed on the grant and the Award
     and the Award Agreement remains in effect; or

     _____ Has not complied with the conditions imposed on the grant and the
     Award and the Award Agreement is retroactively revoked as of the Grant Date
     because
     ___________________________________________________________________.
     describe deficiency

DSW Inc. 2005 Equity Incentive Plan Administrator


By:
    ---------------------------------
Date:
      -------------------------------

NOTE: Send a copy of this completed form to ______________ and keep a copy as
part of the Plan's permanent records.


                                        8



                                    DSW INC.
                           2005 EQUITY INCENTIVE PLAN

                    NONQUALIFIED STOCK OPTION EXERCISE NOTICE
 AFFECTING NONQUALIFIED STOCK OPTIONS ISSUED TO ____________________
                               ON _______________

Additional copies of this Nonqualified Stock Option Exercise Notice are
available from DSW's Vice President, Human Resources at (614) 238-5781 or at the
address given below.

Also, DSW's Vice President, Human Resources can answer any questions you have
about completing this notice and exercising your NQSOs.

By completing this form and returning it to DSW's Vice President, Human
Resources at the address given below, I elect to exercise the NQSOs described
below:

NOTE: You must complete a separate Nonqualified Stock Option Exercise Notice
each time you exercise NQSOs granted under each Award Agreement (e.g., if you
are exercising 200 NQSOs granted January 1, 2006 and 100 NQSOs granted January
1, 2007 under a separate award agreement, you must complete two Nonqualified
Stock Option Exercise Notices, one for each set of NQSOs being exercised).

AFFECTED OPTIONS:  This exercise relates to the following NQSOs (fill in the
blanks):

         GRANT DATE:  _______________

         NUMBER OF NQSOS BEING EXERCISED WITH THIS NOTICE: _____________________

NOTE: You may not exercise fewer than 100 NQSOs at any one time unless you have
fewer than 100 NQSOs outstanding from this grant, in which case you may exercise
all of the outstanding NQSOs from this grant.

EXERCISE PRICE:  The Exercise Price due is $__________________________________

NOTE:  This amount must be the product of $_____ multiplied by the number of
NQSOs being exercised.

PAYMENT OF EXERCISE PRICE:  I have decided to pay the Exercise Price by (check
one):

         ____  Personal check payable to "DSW Inc."

         ____  Through a cashless exercise.

         ____  Through the attestation process.

Note:

     - If you select the cash method of exercise, you must include payment with
       this notice.



                                       9



         -    If you select either the cashless or attestation form of paying
              the Exercise Price, you should contact DSW's Vice President, Human
              Resources at (614) 238-5781 or at the address given below to be
              sure you understand how your choice of payment will affect the
              number of common shares of the Company you will receive.

                   YOUR ACKNOWLEDGEMENT OF EFFECT OF EXERCISE

By signing below, I acknowledge and agree that:

         -    I fully understand the effect (including the investment effect) of
              exercising my NQSOs and buying common shares of the Company and
              understand that there is no guarantee that the value of these
              shares will appreciate or will not depreciate;

         -    This election will have no effect if it is not returned to DSW's
              Vice President, Human Resources at the address given below before
              they expire (as described in the Award Agreement under which these
              NQSOs were issued); and

         -    The common shares of the Company I am buying by filing this form
              will be issued to me as soon as administratively practicable.



____________________


___________________________________________
(signature)

Date signed: ________________________________

A signed copy of this Nonqualified Stock Option Exercise Notice must be sent to
the following address no later than _______________.

                  Katie Maurer
                  Vice President, Human Resources
                  DSW
                  4150 East Fifth Avenue
                  Columbus, Ohio 43219

                                      *****


                                       10



                           ACKNOWLEDGEMENT OF RECEIPT

A signed copy of this Nonqualified Stock Option Exercise Notice was received on:
_______________________*

___________________

____________________________________


Name (please print)
         _____   Has effectively exercised the NQSOs described in this notice;
                 or

         _____   Has not effectively exercised the NQSOs described in this
                 notice because

         __________________________________________________________________
         describe deficiency

DSW Inc. 2005 Equity Incentive Plan Administrator

By:      __________________________________

Date:    __________________________________

Note: Keep a copy of this form as part of the Plan's permanent records.



                                       11



                                    DSW INC.
                           2005 EQUITY INCENTIVE PLAN
                          BENEFICIARY DESIGNATION FORM

 RELATING TO STOCK OPTION AWARD ISSUED TO ____________________
                               ON _______________

                      INSTRUCTIONS FOR COMPLETING THIS FORM

You may use this form [1] to name the person you want to receive any amount due
after your death under the terms of the Award described above or [2] to change
the person who will receive these benefits.

There are several things you should know before you complete this form.

FIRST, if you do not elect another Beneficiary, any death benefit amount due to
you under the Plan will automatically be paid to your surviving spouse or, if
you have no surviving spouse, to your estate.

SECOND, your election will not be effective (and will not be implemented) unless
you sign this form.

THIRD, your election will be effective only if and when this form is completed
properly and returned to DSW's Vice President, Human Resources.

FOURTH, all elections will remain in effect until they are changed (or until all
death benefits are paid).

FIFTH, if you designate your spouse as your Beneficiary but are subsequently
divorced from that person (or your marriage is annulled), your Beneficiary
designation will be revoked automatically.

SIXTH, if you have any questions about this form or if you need additional
copies of this form, please contact DSW's Vice President, Human Resources at
(614) 238-5781 or at the address given below.

                         1.00 DESIGNATION OF BENEFICIARY

1.01     PRIMARY BENEFICIARY:

     I designate the following persons as my Primary Beneficiary or
     Beneficiaries to exercise any rights due after my death under the terms of
     the Award Agreement described at the top of this form. These rights will be
     allocated, in the proportion specified, to:

         ______% to _______________________________________________________
                       (Name)                                (Relationship)

         Address: _________________________________________________________



                                       12



         ______% to _______________________________________________________
                       (Name)                                (Relationship)

         Address: _________________________________________________________

         ______% to _______________________________________________________
                       (Name)                                (Relationship)

         Address: _________________________________________________________

         ______% to _______________________________________________________
                       (Name)                                (Relationship)

         Address: _________________________________________________________

1.02     CONTINGENT BENEFICIARY

IF ONE OR MORE OF MY PRIMARY BENEFICIARIES DIES BEFORE I DIE, I DIRECT THAT any
rights available after my death under the terms of the Award Agreement described
at the top of this form:

         _____ Be allocated to my other named Primary Beneficiaries in
         proportion to the allocation given above (ignoring the interest
         allocated to the deceased Primary Beneficiary); or

         _____ Be allocated among the following Contingent Beneficiaries.

         ______% to _______________________________________________________
                       (Name)                                (Relationship)

         Address: _________________________________________________________

         ______% to _______________________________________________________
                       (Name)                                (Relationship)

         Address: _________________________________________________________

         ______% to _______________________________________________________
                       (Name)                                (Relationship)

         Address: _________________________________________________________

         ______% to _______________________________________________________
                       (Name)                                (Relationship)

         Address: _________________________________________________________

ELECTIONS MADE ON THIS FORM WILL BE EFFECTIVE ONLY AFTER THIS FORM IS RECEIVED
BY DSW'S VICE PRESIDENT, HUMAN RESOURCES AND ONLY IF IT IS FULLY AND PROPERLY
COMPLETED AND SIGNED.



                                       13



Name: ____________________

Soc. Sec. No.: ____________________________________________________________

Date of Birth: ____________________________________________________________

Address: __________________________________________________________________

___________________________________________________________________________

Sign and return this form to DSW's Vice President, Human Resources at the
address given below.

__________________________          ____________________________________
Date                                                 Signature

Return this signed form to DSW's Vice President, Human Resources at the
following address:

                  Katie Maurer
                  Vice President, Human Resources
                  DSW
                  4150 East Fifth Avenue
                  Columbus, Ohio 43219

Received on: __________________

By: ______________________________________



                                       14

EX-31.1

                                                                    Exhibit 31.1

                                 CERTIFICATIONS

I, Jay L. Schottenstein, certify that:

        1.      I have reviewed this quarterly report on Form 10-Q of DSW Inc.;

        2.      Based on my knowledge, this report does not contain any untrue
                statement of a material fact or omit to state a material fact
                necessary to make the statements made, in light of the
                circumstances under which such statements were made, not
                misleading with respect to the period covered by this report;

        3.      Based on my knowledge, the financial statements, and other
                financial information included in this report, fairly present in
                all material respects the financial condition, results of
                operations and cash flows of the registrant as of, and for, the
                periods presented in this report;

        4.      The registrant's other certifying officer and I are responsible
                for establishing and maintaining disclosure controls and
                procedures (as defined in Exchange Act Rules 13a-15(e) and
                15d-15(e)) and internal control over financial reporting (as
                defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
                registrant and have:

                (a)     Designed such disclosure controls and procedures, or
                        caused such disclosure controls and procedures to be
                        designed under our supervision, to ensure that material
                        information relating to the registrant, including its
                        consolidated subsidiaries, is made known to us by others
                        within those entities, particularly during the period in
                        which this report is being prepared;

                (b)     [Reserved];

                (c)     Evaluated the effectiveness of the registrant's
                        disclosure controls and procedures and presented in this
                        report our conclusions about the effectiveness of the
                        disclosure controls and procedures, as of the end of the
                        period covered by this report based on such evaluation;
                        and

                (d)     Disclosed in this report any change in the registrant's
                        internal control over financial reporting that occurred
                        during the registrant's most recent fiscal quarter (the
                        registrant's fourth fiscal quarter in the case of an
                        annual report) that has materially affected, or is
                        reasonably likely to materially affect, the registrant's
                        internal control over financial reporting; and



        5.      The registrant's other certifying officer and I have disclosed,
                based on our most recent evaluation of internal control over
                financial reporting, to the registrant's auditors and the audit
                committee of registrant's board of directors (or persons
                performing the equivalent functions):

                (a)     All significant deficiencies and material weaknesses in
                        the design or operation of internal control over
                        financial reporting which are reasonably likely to
                        adversely affect the registrant's ability to record,
                        process, summarize and report financial information; and

                (b)     Any fraud, whether or not material, that involves
                        management or other employees who have a significant
                        role in the registrant's internal control over financial
                        reporting.


Date:  September 8, 2005                            /s/ Jay L. Schottenstein
                                                    ----------------------------
                                                    Jay L. Schottenstein
                                                    Chief Executive Officer and
                                                    Chairman of the Board

EX-31.2

                                                                    Exhibit 31.2

                                 CERTIFICATIONS

I, Douglas J. Probst, certify that:

        1.      I have reviewed this quarterly report on Form 10-Q of DSW Inc.;

        2.      Based on my knowledge, this report does not contain any untrue
                statement of a material fact or omit to state a material fact
                necessary to make the statements made, in light of the
                circumstances under which such statements were made, not
                misleading with respect to the period covered by this report;

        3.      Based on my knowledge, the financial statements, and other
                financial information included in this report, fairly present in
                all material respects the financial condition, results of
                operations and cash flows of the registrant as of, and for, the
                periods presented in this report;

        4.      The registrant's other certifying officer and I are responsible
                for establishing and maintaining disclosure controls and
                procedures (as defined in Exchange Act Rules 13a-15(e) and
                15d-15(e)) and internal control over financial reporting (as
                defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
                registrant and have:

                (a)     Designed such disclosure controls and procedures, or
                        caused such disclosure controls and procedures to be
                        designed under our supervision, to ensure that material
                        information relating to the registrant, including its
                        consolidated subsidiaries, is made known to us by others
                        within those entities, particularly during the period in
                        which this report is being prepared;

                (b)     [Reserved];

                (c)     Evaluated the effectiveness of the registrant's
                        disclosure controls and procedures and presented in this
                        report our conclusions about the effectiveness of the
                        disclosure controls and procedures, as of the end of the
                        period covered by this report based on such evaluation;
                        and

                (d)     Disclosed in this report any change in the registrant's
                        internal control over financial reporting that occurred
                        during the registrant's most recent fiscal quarter (the
                        registrant's fourth fiscal quarter in the case of an
                        annual report) that has materially affected, or is
                        reasonably likely to materially affect, the registrant's
                        internal control over financial reporting; and



        5.      The registrant's other certifying officer and I have disclosed,
                based on our most recent evaluation of internal control over
                financial reporting, to the registrant's auditors and the audit
                committee of registrant's board of directors (or persons
                performing the equivalent functions):

                (a)     All significant deficiencies and material weaknesses in
                        the design or operation of internal control over
                        financial reporting which are reasonably likely to
                        adversely affect the registrant's ability to record,
                        process, summarize and report financial information; and

                (b)     Any fraud, whether or not material, that involves
                        management or other employees who have a significant
                        role in the registrant's internal control over financial
                        reporting.


Date:  September 8, 2005                           /s/ Douglas J. Probst
                                                   -----------------------------
                                                   Douglas J. Probst
                                                   Chief Financial Officer

EX-32.1

                                                                    Exhibit 32.1

                           SECTION 1350 CERTIFICATION

        In connection with the Quarterly Report of DSW Inc. (the "Company") on
Form 10-Q for the period ending July 30, 2005, as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Jay L. Schottenstein,
Chief Executive Officer and Chairman of the Board of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

                (1)     The Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a)
or 78o(d)); and

                (2)     The information contained in the Report fairly presents,
in all material respects, the financial condition and result of operations of
the Company.



September 8, 2005                                /s/ Jay L. Schottenstein
                                                 --------------------------
                                                 Jay L. Schottenstein
                                                 Chief Executive Officer and
                                                 Chairman of the Board

A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.

EX-32.2

                                                                    Exhibit 32.2

                           SECTION 1350 CERTIFICATION

        In connection with the Quarterly Report of DSW Inc. (the "Company") on
Form 10-Q for the period ending July 30, 2005, as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Douglas J. Probst,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:

                (1)     The Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a)
or 78o(d)); and

                (2)     The information contained in the Report fairly presents,
in all material respects, the financial condition and result of operations of
the Company.



September 8, 2005                                   /s/ Douglas J. Probst
                                                    --------------------------
                                                    Douglas J. Probst
                                                    Chief Financial Officer



A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.

EX-99

                                                                      EXHIBIT 99

                                    DSW INC.

     SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995


The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information, so long as those statements are identified as
forward-looking and are accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those discussed in the statement. DSW Inc. (the "Company")
desires to take advantage of the "safe harbor" provisions of the Act.

Certain information in this Form 10-Q, particularly information regarding future
economic performance and finances, and plans, expectations and objectives of
management, is forward looking. The following factors, in addition to other
possible factors not listed, could affect the Company's actual results and cause
such results to differ materially from those expressed in forward-looking
statements:


WE INTEND TO OPEN NEW DSW STORES AT AN INCREASED RATE COMPARED TO HISTORICAL
YEARS, WHICH COULD STRAIN OUR RESOURCES AND HAVE A MATERIAL ADVERSE EFFECT ON
OUR BUSINESS AND FINANCIAL PERFORMANCE.

Our continued and future growth largely depends on our ability to successfully
open and operate new DSW stores on a profitable basis. During fiscal 2004,
fiscal 2003 and fiscal 2002, we opened 30 (net of one store closing during that
period), 16 and 22 new DSW stores, respectively. We intend to open approximately
30 stores per year in each fiscal year from fiscal 2005 through fiscal 2008.
This continued expansion could place increased demands on our financial,
managerial, operational and administrative resources. For example, our planned
expansion will require us to increase continually the number of people we employ
as well as to monitor and upgrade our management information and other systems
and our distribution facilities. These increased demands and operating
complexities could cause us to operate our business less efficiently, adversely
affect our operations and financial performance and slow our growth.


WE MAY BE UNABLE TO OPEN ALL THE STORES CONTEMPLATED BY OUR GROWTH STRATEGY ON A
TIMELY BASIS, AND NEW STORES WE OPEN MAY NOT BE PROFITABLE OR MAY HAVE AN
ADVERSE IMPACT ON THE PROFITABILITY OF EXISTING STORES, EITHER OF WHICH COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

We intend to open approximately 30 stores per year in each fiscal year from
fiscal 2005 through fiscal 2008. However, we may not achieve our planned
expansion on a timely and profitable basis or achieve results in new locations
similar to those achieved in existing locations in prior periods. Our ability to
open and operate new DSW stores successfully on a timely and profitable basis
depends on many factors, including, among others, our ability to:

        -       identify suitable markets and sites for new store locations;

        -       negotiate favorable lease terms;

        -       build-out or refurbish sites on a timely and effective basis;

        -       obtain sufficient levels of inventory to meet the needs of new
                stores;

        -       obtain sufficient financing and capital resources or generate
                sufficient cash flows from operations to fund growth;

        -       open new stores at costs not significantly greater than those
                anticipated;



                                       1


        -       successfully open new DSW stores in regions of the United States
                in which we currently have few or no stores;

        -       control the costs of other capital investments associated with
                store openings, including, for example, those related to the
                expansion of distribution facilities;

        -       hire, train and retain qualified managers and store personnel;
                and

        -       successfully integrate new stores into our existing
                infrastructure, operations and management and distribution
                systems or adapt such infrastructure, operations and systems to
                accommodate our growth.

As a result, we may be unable to open new stores at the rates expected or at
all. If we fail to successfully implement our growth strategy, the opening of
new DSW stores could be delayed or prevented, could cost more than anticipated
and could divert resources from other areas of our business, any of which could
have a material adverse effect on our business, financial condition and results
of operations.

To the extent that we open new DSW stores in our existing markets, we may
experience reduced net sales in existing stores in those markets. As the number
of our stores increases, our stores will become more concentrated in the markets
we serve. As a result, the number of customers and financial performance of
individual stores may decline and the average sales per square foot at our
stores may be reduced. This could have a material adverse effect on our
business, financial condition and results of operations.


WE RELY ON OUR GOOD RELATIONSHIPS WITH VENDORS TO PURCHASE BRAND NAME AND
DESIGNER MERCHANDISE AT FAVORABLE PRICES. IF THESE RELATIONSHIPS WERE TO BE
IMPAIRED, WE MAY NOT BE ABLE TO OBTAIN A SUFFICIENT SELECTION OF MERCHANDISE AT
ATTRACTIVE PRICES, AND WE MAY NOT BE ABLE TO RESPOND PROMPTLY TO CHANGING
FASHION TRENDS, EITHER OF WHICH COULD HAVE A NEGATIVE IMPACT ON OUR COMPETITIVE
POSITION, OUR BUSINESS AND FINANCIAL PERFORMANCE.

We do not have long-term supply agreements or exclusive arrangements with any
vendors and, therefore, our success depends on maintaining good relations with
our vendors. Our growth strategy depends to a significant extent on the
willingness and ability of our vendors to supply us with sufficient inventory to
stock our new stores. If we fail to strengthen our relations with our existing
vendors or to enhance the quality of merchandise they supply us, and if we
cannot maintain or acquire new vendors of in-season brand name and designer
merchandise, our ability to obtain a sufficient amount and variety of
merchandise at favorable prices may be limited, which could have a negative
impact on our competitive position. In addition, our inability to stock our DSW
stores with in-season merchandise at attractive prices could result in lower net
sales and decreased customer interest in our stores, which, in turn, would
adversely affect our financial performance.


WE MAY BE UNABLE TO ANTICIPATE AND RESPOND TO FASHION TRENDS AND CONSUMER
PREFERENCES IN THE MARKETS IN WHICH WE OPERATE, WHICH COULD ADVERSELY AFFECT OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Our merchandising strategy is based on identifying each region's customer base
and having the proper mix of products in each store to attract our target
customers in that region. This requires us to anticipate and respond to numerous
and fluctuating variables in fashion trends and other conditions in the markets
in which our stores are situated. A variety of factors will affect our ability
to maintain the proper mix of products in each store, including:

        -       variations in local economic conditions, which could affect our
                customers' discretionary spending;

        -       unanticipated fashion trends;

        -       our success in developing and maintaining vendor relationships
                that provide us access to in-season merchandise at attractive
                prices;

        -       our success in distributing merchandise to our stores in an
                efficient manner; and



                                       2


        -       changes in weather patterns, which in turn affect consumer
                preferences.

If we are unable to anticipate and fulfill the merchandise needs of each region,
we may experience decreases in our net sales and may be forced to increase
markdowns in relation to slow-moving merchandise, either of which could have an
adverse effect on our business, financial condition and results of operations.


OUR COMPARABLE STORE SALES AND QUARTERLY FINANCIAL PERFORMANCE MAY FLUCTUATE FOR
A VARIETY OF REASONS, WHICH COULD RESULT IN A DECLINE IN THE PRICE OF OUR CLASS
A COMMON SHARES.

Our business is sensitive to customers' spending patterns, which in turn are
subject to prevailing regional and national economic conditions and the general
level of economic activity. Our comparable store sales and quarterly results of
operations have fluctuated in the past, and we expect them to continue to
fluctuate in the future. A variety of other factors affect our comparable store
sales and quarterly financial performance, including:

        -       changes in our merchandising strategy;

        -       timing and concentration of new DSW store openings and related
                pre-opening and other start-up costs;

        -       levels of pre-opening expenses associated with new DSW stores;

        -       changes in our merchandise mix;

        -       changes in and regional variations in demographic and population
                characteristics;

        -       timing of promotional events;

        -       seasonal fluctuations due to weather conditions;

        -       actions by our competitors; and

        -       general United States economic conditions and, in particular,
                the retail sales environment.

Accordingly, our results for any one fiscal quarter are not necessarily
indicative of the results to be expected for any other quarter, and comparable
store sales for any particular future period may decrease. Our future financial
performance may fall below the expectations of securities analysts and
investors. In that event, the price of our Class A Common Shares would likely
decline.


WE RELY ON A SINGLE DISTRIBUTION CENTER. THE LOSS OR DISRUPTION OF OUR
CENTRALIZED DISTRIBUTION CENTER OR OUR FAILURE IN THE FUTURE TO ADD ADDITIONAL
DISTRIBUTION FACILITIES COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS AND
OPERATIONS.

Most of our inventory is shipped directly from suppliers to a single centralized
distribution center in Columbus, Ohio, where the inventory is then processed,
sorted and shipped to one of 11 pool locations located throughout the country
and then on to our stores. Our operating results depend on the orderly operation
of our receiving and distribution process, which in turn depends on third-party
vendors' adherence to shipping schedules and our effective management of our
distribution facilities. We may not anticipate all the changing demands that our
expanding operations will impose on our receiving and distribution system, and
events beyond our control, such as disruptions in operations due to fire or
other catastrophic events, labor disagreements or shipping problems, may result
in delays in the delivery of merchandise to our stores.

We may need to increase our distribution capacity in 2006 to accommodate our
expanding retail store base. Because our ability to expand our distribution
facilities at our current site is limited, we may need to acquire, construct or
lease additional distribution facilities in other geographic locations to
accommodate our planned expansion. We may also need to invest in additional
information technology to achieve a unified receiving and distribution system.



                                       3


While we maintain business interruption and property insurance, in the event our
distribution center were to be shut down for any reason or if we were to incur
higher costs and longer lead times in connection with a disruption at our
distribution center, our insurance may not be sufficient, and insurance proceeds
may not be timely paid to us.

WE ARE DEPENDENT ON RETAIL VENTURES TO PROVIDE US WITH MANY KEY SERVICES FOR OUR
BUSINESS. THE AGREEMENTS WE ENTERED INTO WITH RETAIL VENTURES IN CONNECTION WITH
OUR IPO COULD RESTRICT OUR OPERATIONS AND ADVERSELY AFFECT OUR FINANCIAL
CONDITION. OUR PRIOR AND CONTINUING RELATIONSHIP WITH RETAIL VENTURES EXPOSES US
TO RISKS ATTRIBUTABLE TO RETAIL VENTURES' BUSINESS.

From 1998 until the completion of its IPO, DSW was operated as a wholly-owned
subsidiary of Value City Department Stores, Inc. or Retail Ventures, and many
key services required by DSW for the operation of its business were provided by
Retail Ventures and its subsidiaries. In connection with our IPO, we entered
into agreements with Retail Ventures related to the separation of our business
operations from Retail Ventures including, among others, a master separation
agreement, a shared services agreement and a tax separation agreement.

Under the terms of the shared services agreement, which when signed became
effective as of January 30, 2005, Retail Ventures will provide us with key
services relating to import administration, risk management, information
technology, tax, logistics and inbound transportation management, legal
services, financial services, shared benefits administration and payroll and
will maintain insurance for us and for our directors, officers, and employees.
In turn, we will provide several subsidiaries of Retail Ventures with services
relating to planning and allocation support, distribution services and outbound
transportation management, site research, lease negotiation, store design and
construction management. The initial term of the shared services agreement will
expire at the end of fiscal 2007 and will be extended automatically for
additional one-year terms unless terminated by one of the parties. We expect
some of these services to be provided for longer or shorter periods than the
initial term. We believe it is necessary for Retail Ventures to provide these
services for us under the shared services agreement to facilitate the efficient
operation of our business.

Once the transition periods specified in the shared services agreement have
expired and are not renewed, or if Retail Ventures does not or is unable to
perform its obligations under the shared services agreement, we will be required
to provide these services ourselves or to obtain substitute arrangements with
third parties. We may be unable to provide these services because of financial
or other constraints or be unable to timely implement substitute arrangements on
terms that are favorable to us, or at all, which would have an adverse effect on
our business, financial condition and results of operations.

The tax separation agreement, which became effective upon the consummation of
our IPO, governs the respective rights, responsibilities, and obligations of
Retail Ventures and us with respect to tax liabilities and benefits, tax
attributes, tax contests and other matters regarding taxes and related tax
returns. Although Retail Ventures does not intend or plan to undertake a
spin-off of our stock to Retail Ventures stockholders, we and Retail Ventures
have agreed to set forth our respective rights, responsibilities and obligations
with respect to any possible spin-off in the tax separation agreement. If Retail
Ventures were to decide to pursue a possible spin-off, we have agreed to
cooperate with Retail Ventures and to take any and all actions reasonably
requested by Retail Ventures in connection with such a transaction. We have also
agreed not to knowingly take or fail to take any actions that could reasonably
be expected to preclude Retail Ventures' ability to undertake a tax-free
spin-off. In addition, we generally would be responsible for any taxes resulting
from the failure of a spin-off to qualify as a tax-free transaction to the
extent such taxes are attributable to, or result from, any action or failure to
act by us or certain transactions in our stock (including transactions over
which we would have no control, such as acquisitions of our stock and the
exercise of warrants, options, exchange rights, conversion rights or similar
arrangements with respect to our stock) following or preceding a spin-off. We
would also be responsible for a percentage (based on the relative market
capitalizations of DSW and Retail Ventures at the time of such spin-off) of such
taxes to the extent such taxes are not otherwise attributable to DSW or Retail
Ventures. Our agreements in connection with such tax matters last indefinitely.



                                       4


Retail Ventures is obligated to indemnify us for losses that a party may seek to
impose upon us or our affiliates for liabilities relating to the Retail Ventures
business that are incurred through a breach of the master separation agreement
between us and Retail Ventures or any ancillary agreement between us and Retail
Ventures or its non-DSW affiliates, if such losses are attributable to Retail
Ventures in connection with our IPO or are not expressly assumed by us under the
master separation agreement. Any claims made against us that are properly
attributable to Retail Ventures or Value City in accordance with these
arrangements would require us to exercise our rights under the master separation
agreement to obtain payment from Retail Ventures. We are exposed to the risk
that, in these circumstances, Retail Ventures cannot, or will not, make the
required payment. If this were to occur, our business and financial performance
could be adversely affected.

Prior to our IPO, we had not been operated as a stand-alone company since 1998.
Our business no longer has access to the borrowing capacity, cash flow, assets
and some services provided by Retail Ventures and its subsidiaries as we did
while we were wholly-owned by Retail Ventures.

OUR FAILURE TO RETAIN OUR EXISTING SENIOR MANAGEMENT TEAM AND TO CONTINUE TO
ATTRACT QUALIFIED NEW PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS.

Our business requires disciplined execution at all levels of our organization to
ensure that we continually have sufficient inventories of assorted brand name
merchandise at below traditional retail prices. This execution requires an
experienced and talented management team. If we were to lose the benefit of the
experience, efforts and abilities of any of our key executive and buying
personnel, our business could be materially adversely affected. We have entered
into employment agreements with several of these officers. Furthermore, our
ability to manage our retail expansion will require us to continue to train,
motivate and manage our employees and to attract, motivate and retain additional
qualified managerial and merchandising personnel. Competition for these types of
personnel is intense, and we may not be successful in attracting, assimilating
and retaining the personnel required to grow and operate our business
profitably.


WE MAY BE UNABLE TO COMPETE FAVORABLY IN OUR HIGHLY COMPETITIVE MARKET.

The retail footwear market is highly competitive with few barriers to entry. We
compete against a diverse group of retailers, both small and large, including
locally owned shoe stores, regional and national department stores, specialty
retailers and discount chains. Some of our competitors are larger and have
substantially greater resources than we do. Our success depends on our ability
to remain competitive with respect to style, price, brand availability and
customer service. The performance of our competitors, as well as a change in
their pricing policies, marketing activities and other business strategies,
could have a material adverse effect on our business, financial condition,
results of operations and our market share.


A DECLINE IN GENERAL ECONOMIC CONDITIONS, OR THE OUTBREAK OR ESCALATION OF WAR
OR TERRORIST ACTS, COULD LEAD TO REDUCED CONSUMER DEMAND FOR OUR FOOTWEAR AND
ACCESSORIES.

Consumer spending habits, including spending for the footwear and related
accessories that we sell, are affected by, among other things, prevailing
economic conditions, levels of employment, salaries and wage rates, prevailing
interest rates, income tax rates and policies, consumer confidence and consumer
perception of economic conditions. In addition, consumer purchasing patterns may
be influenced by consumers' disposable income. A general slowdown in the United
States economy or an uncertain economic outlook could adversely affect consumer
spending habits.

Consumer confidence is also affected by the domestic and international political
situation. The outbreak or escalation of war, or the occurrence of terrorist
acts or other hostilities in or affecting the United States, could lead to a
decrease in spending by consumers. In the event of an economic slowdown, we
could experience lower net sales than expected on a quarterly or annual basis
and be forced to delay or slow our retail expansion plans.



                                       5


WE RELY ON FOREIGN SOURCES FOR OUR MERCHANDISE, AND OUR BUSINESS IS THEREFORE
SUBJECT TO RISKS ASSOCIATED WITH INTERNATIONAL TRADE.

We purchase merchandise from domestic and foreign vendors. In addition, many of
our domestic vendors import a large portion of their merchandise from abroad,
primarily from China, Brazil and Italy. We believe that almost all the
merchandise we purchase is manufactured outside the United States. For this
reason, we face risks inherent in purchasing from foreign suppliers, such as:

        -       economic and political instability in countries where these
                suppliers are located;

        -       international hostilities or acts of war or terrorism affecting
                the United States or foreign countries from which our
                merchandise is sourced;

        -       increases in shipping costs;

        -       transportation delays and interruptions, including as a result
                of increased inspections of import shipments by domestic
                authorities;

        -       work stoppages;

        -       adverse fluctuations in currency exchange rates;

        -       United States laws affecting the importation of goods, including
                duties, tariffs and quotas and other non-tariff barriers;

        -       expropriation or nationalization;

        -       changes in local government administration and governmental
                policies;

        -       changes in import duties or quotas;

        -       compliance with trade and foreign tax laws; and

        -       local business practices, including compliance with local laws
                and with domestic and international labor standards.

We require our vendors to operate in compliance with applicable laws and
regulations and our internal requirements. However, we do not control our
vendors or their labor and business practices. The violation of labor or other
laws by one of our vendors could have an adverse effect on our business.


OUR NEW SECURED REVOLVING CREDIT FACILITY COULD LIMIT OUR OPERATIONAL
FLEXIBILITY.

In July 2005, we entered into a new $150 million secured revolving credit
facility with a term of five years. Under this new facility, we and our
subsidiary, DSW Shoe Warehouse, Inc. ("DSWSW"), are named as co-borrowers. This
new facility has borrowing base restrictions and provides for borrowings at
variable interest rates based on the London Interbank Offered Rate, the prime
rate and the Federal Funds effective rate, plus a margin. Our obligations under
our new secured revolving credit facility are secured by a lien on substantially
all of our and DSWSW's personal property and a pledge of all of our shares of
DSWSW. In addition, this facility contains usual and customary restrictive
covenants relating to our management and the operation of our business. These
covenants, among other things, restrict our ability to grant liens on our
assets, incur additional indebtedness, open or close stores, pay cash dividends
and redeem our stock, enter into transactions with affiliates and merge or
consolidate with another entity. In addition, if at any time we utilize over 90%
of our borrowing capacity under this facility, we must comply with a fixed
charge coverage ratio test set forth in the facility documents. These covenants
could restrict our operational flexibility, and any failure to comply with these
covenants or our payment obligations would limit our ability to borrow under the
new secured revolving credit facility and, in certain circumstances, may allow
the lenders thereunder to require repayment.



                                       6


FROM 1998 UNTIL ITS IPO, DSW WAS NOT OPERATED AS AN ENTITY SEPARATE FROM VALUE
CITY AND RETAIL VENTURES, AND, AS A RESULT, DSW'S HISTORICAL AND PRO FORMA
FINANCIAL INFORMATION MAY NOT BE INDICATIVE OF DSW'S HISTORICAL FINANCIAL
RESULTS OR FUTURE FINANCIAL PERFORMANCE.

Our consolidated financial information included in this Form 10-Q, as it relates
to periods before July 5, 2005, may not be indicative of our future financial
performance. This is because these statements do not necessarily reflect the
historical financial condition, results of operations and cash flows of DSW as
they would have been had we been operated during the periods presented as a
separate, stand-alone entity.

Our consolidated financial information, as it relates to periods before July 5,
2005, assumes that DSW, for the periods presented, had existed as a separate
legal entity, and has been derived from the consolidated financial statements of
Retail Ventures. Some costs have been reflected in the consolidated financial
statements that are not necessarily indicative of the costs that we would have
incurred had we operated as an independent, stand-alone entity for all periods
presented. These costs include allocated portions of Retail Ventures' corporate
overhead, interest expense and income taxes.


WE FACE SECURITY RISKS RELATED TO OUR ELECTRONIC PROCESSING AND TRANSMISSION OF
CONFIDENTIAL CUSTOMER INFORMATION. ON MARCH 8, 2005, WE ANNOUNCED THE THEFT OF
CREDIT CARD AND OTHER PURCHASE INFORMATION RELATING TO DSW CUSTOMERS. THIS
SECURITY BREACH COULD ADVERSELY AFFECT OUR REPUTATION AND BUSINESS AND SUBJECT
US TO LIABILITY.

We rely on commercially available encryption software and other technologies to
provide security for processing and transmission of confidential customer
information, such as credit card numbers. Advances in computer capabilities, new
discoveries in the field of cryptography, or other events or developments,
including improper acts by third parties, may result in a compromise or breach
of the security measures we use to protect customer transaction data.
Compromises of these security systems could have a material adverse effect on
our reputation and business, and may subject us to significant liabilities and
reporting obligations. A party who is able to circumvent our security measures
could misappropriate our information, cause interruptions in our operations,
damage our reputation and customers' willingness to shop in our stores and
subject us to possible liability. We may be required to expend significant
capital and other resources to protect against these security breaches or to
alleviate problems caused by these breaches.

On March 8, 2005, Retail Ventures announced that it had learned of the theft of
credit card and other purchase information from a portion of DSW customers. On
April 18, 2005, Retail Ventures issued the findings from our investigation into
the theft. The theft took place primarily over two weeks and covered all
customers who made purchases at 108 DSW stores, primarily during a three-month
period from mid-November 2004 to mid-February 2005. Transaction information
involving approximately 1.4 million credit cards was obtained. For each card,
the stolen information included credit card or debit card numbers, name and
transaction amount. In addition, data from transactions involving approximately
96,000 checks were stolen. In these cases, checking account numbers and driver's
license numbers were obtained.

We have contacted and are cooperating with federal law enforcement and other
authorities with regard to this matter. To mitigate potential negative effects
on our business and financial performance, we are working with credit card
companies and issuers and trying to contact as many of our affected customers as
possible. In addition, we worked with a leading computer security firm to
minimize the risk of any future data theft. We are involved in several legal
proceedings arising out of this incident that we believe, after consultation
with counsel, are not individually or collectively expected to have a material
adverse effect on our financial position. There can be no assurance that there
will not be additional proceedings or claims brought against us in the future.



                                       7


As of July 30, 2005, we estimate that the potential exposures for losses related
to this theft, including exposure under currently pending proceedings, range
from approximately $6.5 million to approximately $9.5 million. Because of many
factors, including the early development of information regarding the theft and
recoverability under insurance policies, there is no amount in the estimated
range that represents a better estimate than any other amount in the range.
Therefore, in accordance with Financial Accounting Standard No. 5, "Accounting
for Contingencies," we have accrued a charge to operations in the first quarter
of fiscal 2005 equal to the low end of the range set forth above, or $6.5
million. As the situation develops and more information becomes available to us,
the amount of the reserve may increase or decrease accordingly. The amount of
any such change may be material.

Although difficult to quantify, since the announcement of the theft, we have not
yet discerned any material negative effect on sales trends we believe are
attributable to the theft. However, this many not be indicative of the
long-term developments regarding this matter.


WE ARE CONTROLLED DIRECTLY BY RETAIL VENTURES AND INDIRECTLY BY SCHOTTENSTEIN
STORES CORPORATION, WHOSE INTERESTS MAY DIFFER FROM OTHER SHAREHOLDERS.

Retail Ventures, a public corporation, owns 100% of our Class B Common Shares,
which represents approximately 63.0% of our outstanding Common Shares. These
shares collectively represent approximately 93.2% of the combined voting power
of our outstanding Common Shares. Approximately 48.2% of Retail Ventures' common
shares on a fully diluted basis are beneficially owned by Schottenstein Stores
Corporation, or SSC, a privately held corporation controlled by Jay L.
Schottenstein, the Chairman of the Board of Directors of DSW and Retail Ventures
and the Chief Executive Officer of DSW, and members of his immediate family.
Given their respective ownership interests, Retail Ventures and, indirectly,
SSC, will be able to control or substantially influence the outcome of all
matters submitted to our shareholders for approval, including:

        -       the election of directors;

        -       mergers or other business combinations; and

        -       acquisitions or dispositions of assets.

The interests of Retail Ventures or SSC may differ from or be opposed to the
interests of our other shareholders, and their control may have the effect of
delaying or preventing a change in control that may be favored by other
shareholders.

SSC AND RETAIL VENTURES OR ITS AFFILIATES MAY COMPETE DIRECTLY AGAINST US.

Corporate opportunities may arise in the area of potential competitive business
activities that may be attractive to Retail Ventures, SSC and us in the area of
employee recruiting and retention. Any competition could intensify if Value City
Department Stores LLC, or Value City, begins to carry an assortment of shoes in
its stores similar to those found in our stores, target customers similar to
ours or adopt a similar business model or strategy for its shoe businesses.
Given that Value City is a wholly-owned subsidiary of Retail Ventures and DSW is
not wholly-owned, Retail Ventures and SSC may be inclined to direct relevant
corporate opportunities to Value City rather than us.

Our amended and restated articles of incorporation (our "Articles") provide that
Retail Ventures and SSC are under no obligation to communicate or offer any
corporate opportunity to us. In addition, Retail Ventures and SSC have the right
to engage in similar activities as us, do business with our suppliers and
customers and, except as limited by the master separation agreement between us
and Retail Ventures, employ or otherwise engage any of our officers or
employees. SSC and its affiliates engage in a variety of businesses, including,
but not limited to, business and inventory liquidations and real estate
acquisitions. Our Articles also outline how corporate opportunities are to be
assigned in the event that our, Retail Ventures' or SSC's directors and officers
learn of corporate opportunities.



                                       8


SOME OF OUR DIRECTORS AND OFFICERS ALSO SERVE AS DIRECTORS OR OFFICERS OF RETAIL
VENTURES, AND MAY HAVE CONFLICTS OF INTEREST BECAUSE THEY MAY OWN RETAIL
VENTURES STOCK OR OPTIONS TO PURCHASE RETAIL VENTURES STOCK, OR THEY MAY RECEIVE
CASH-BASED OR EQUITY-BASED AWARDS BASED ON THE PERFORMANCE OF RETAIL VENTURES.

Some of our directors and officers also serve as directors or officers of Retail
Ventures and may own Retail Ventures stock or options to purchase Retail
Ventures stock, or they may be entitled to participate in the Retail Ventures
incentive plans. Jay L. Schottenstein is our Chief Executive Officer and
Chairman of the Board of Directors and Chairman of the Board of Directors of
Retail Ventures; Heywood Wilansky is a director of DSW and Chief Executive
Officer of Retail Ventures; Harvey L. Sonnenberg is a director of DSW and of
Retail Ventures; Julia A. Davis is Executive Vice President and General Counsel
of both DSW and Retail Ventures, and serves as Secretary and Assistant Secretary
for DSW and Retail Ventures, respectively; Steven E. Miller is Senior Vice
President and Controller of both DSW and Retail Ventures; and James A. McGrady
is a Vice President of DSW and Executive Vice President, Chief Financial
Officer, Treasurer and Secretary of Retail Ventures. Retail Ventures' incentive
plans provide cash-based and equity-based compensation to employees based on
Retail Ventures' performance. These employment arrangements and ownership
interests or cash-based or equity-based awards could create, or appear to
create, potential conflicts of interest when directors or officers who own
Retail Ventures stock or stock options or who participate in the Retail
Ventures' incentive plans are faced with decisions that could have different
implications for Retail Ventures than they do for us. These potential conflicts
of interest may not be resolved in our favor.




                                       9