DSW Inc. reported sales increased 14.7 percent in the second quarter to $476.3 million from $415.1 million in the second quarter of 2010. Comparable sales for the second quarter increased 12.3 percent.
The comp gain followed a 12.0 percent increase in comparable sales in the second
quarter of 2010.
Reported net income was $139.9 million, or $3.96 per diluted share
on 35.4 million weighted average shares outstanding, which included a
net benefit of $106.2 million, related to the merger with RVI. This
compares to reported net income of $26.9 million, or $1.00 per diluted
share on 22.3 million weighted average shares outstanding, in the second
quarter of 2010.
Net income, adjusted for items related to the completed merger with
RVI, was $33.7 million, or $0.74 per diluted share on 45.3 million
weighted average shares outstanding. This compares to adjusted net
income of $23.5 million, or $0.52 per diluted share on 44.8 million
weighted average shares outstanding, in the second quarter of 2010.
“We continued our strong performance in the second quarter, delivering double-digit increases in sales and comparable sales, expansion in gross margin and solid earnings growth driven by the success of our format and our strategies,” stated Mike MacDonald, President and Chief Executive Officer, DSW Inc. “We believe our sustained momentum is a clear indication of DSW's authority in the footwear category. The second quarter marked our eighth consecutive quarter of strong comparable sales approaching or equaling a double-digit growth rate. The second quarter also represented a significant milestone for us as we completed the merger with Retail Ventures, Inc. In our ongoing efforts to increase value for our shareholders, our Board approved a special dividend of $2.00 per share and the initiation of a quarterly cash dividend payment of $0.15 per share.”
“During the quarter we increased our men's and accessories penetration while continuing to grow women's fashion footwear,” MacDonald continued. “We also launched our mobile website and kids' shoes online to further our market share gains in the high-growth e-commerce business. Despite economic uncertainty and equity market volatility, we expect fiscal 2011 to represent another strong year of growth and increased value for all DSW stakeholders.”
Six-Month Operating Results
Net sales increased 13.3 percent to $979.9 million from $864.7 million for the first six months of 2010.
Comparable sales for the first six months increased 11.5 percent. This follows a 14.1 percent increase in comparable sales in the first six months of 2010.
Reported net income was $101.7 million, or $3.54 per diluted share on 28.7 million weighted average shares outstanding, which included a net benefit of $28.4 million, related to the merger with Retail Ventures, Inc. This compares to reported net income of $21.0 million, or $0.98 per diluted share on 21.4 million weighted average shares outstanding, in the second quarter of 2010.
Net income, adjusted for items related to the completed merger with RVI, was $73.3 million, or $1.62 per diluted share on 45.3 million weighted average shares outstanding. This compares to adjusted net income of $53.6 million, or $1.20 per diluted share on 44.8 million weighted average shares outstanding, in the second quarter of 2010.
Second Quarter Balance Sheet Highlights
Cash and investments totaled $418 million compared to $305 million at the end of the second quarter 2010.
Inventories were $318 million compared to $309 million at the end of the second quarter of 2010. Inventory per square foot was flat compared to the second quarter of 2010.
Recent Merger Transaction
On February 8, 2011, the company and its largest shareholder, Retail Ventures, Inc., announced the two companies had signed a definitive merger agreement providing for RVI to become a wholly-owned subsidiary of DSW in an exchange of shares at an exchange ratio of 0.435 DSW shares for each RVI share. On May 19, 2011 the merger was approved by DSW and RVI shareholders and closed on May 26, 2011. Pre-merger financial information presented in the DSW consolidated financial statements represents consolidated Retail Ventures' financial information. References to Retail Ventures or RVI refer to the pre-merger entity. The pre-merger financial information has been retrospectively recast for share and per share information, segment presentation and cost of sales.
As a result of the merger, DSW assumed all of RVI's obligations, including 6.625 percent mandatorily exchangeable notes due September 15, 2011, known as Premium Income Exchangeable Securities (“PIES”). Subsequent to quarter-end, on August 10, 2011 the company announced that it would settle the outstanding PIES for approximately 3.8 million shares of DSW Class A common stock on the maturity date of September 15, 2011. Following the delivery of the shares to the holders of the PIES, the company's public float will increase by the 3.8 million shares. However, these shares will not increase the number of DSW diluted shares reported in the first quarter of 2011 because they have always been included in the diluted share count since the PIES were issued in 2006.
Based on terms in the PIES agreement, the number of shares required to settle the PIES could increase up to an additional one million shares if during the applicable measuring period, August 15, 2011 to September 12, 2011, the average DSW stock price were to fall below $34.95. The DSW stock price closed yesterday over $47 per share.
Fiscal 2011 Annual Outlook
The company is raising its annual guidance. DSW continues to estimate annual comparable sales to increase in the mid-single-digit range and now expects annual diluted earnings per share in the range of $2.70 to $2.85 for fiscal 2011, excluding any impact from the merger with RVI. This assumes moderate comp growth, flat gross margin and modest deleveraging of expenses in the second half of fiscal 2011, as compared to the second half of fiscal 2010.
