DSW Inc. reported adjusted earnings rose 16 percent in the third quarter ended October 31, as higher margins helped offset a slight decline in same-store sales.

Roger Rawlins, chief executive officer of DSW Inc., stated, “This quarter reflects the first step in our return to year-over-year earnings growth. After four consecutive declines, we reported a 16 percent increase in adjusted earnings per share this quarter. Tighter inventory management drove improvements in gross margin which, combined with effective expense management, resulted in an increase in net income. We’ve reduced clearance markdowns and we are positioned to generate more profitable sales in the holiday season.”

Rawlins added, “Looking ahead, we remain steadfast in delivering consistent execution as we drive shareholder returns and capture market share in the long term.”

Third Quarter Operating Results
Sales increased 4.7 percent to $697 million, including $21.3 million from Ebuys. Comparable sales decreased by 2 percent compared to last year’s decrease of 3.9 percent. Reported gross profit increased by 50 basis points. Adjusted gross profit increased by 60 basis points, driven by lower clearance markdowns and last year’s inventory valuation reserve offset by higher shipping costs and the lower gross profit rate from Ebuys, which was acquired in 2016.

Reported operating expense rate increased by 80 basis points. Adjusted operating expense rate increased by 40 bps, due to the accrual for incentive compensation reversed last year and the favorable timing of marketing expenses. Excluding the impact of incentive compensation, Adjusted operating expense rate improved by 110 bps. Reported tax rate increased by 30 basis points to last year.

Reported net income was $39 million, or 47 cents per diluted share, including pre-tax charges of $3.1 million, or 2 cents per share, from the acquisition of Ebuys and restructuring costs of $1.3 million, or 1 cent per share. Adjusted net income was $41.7 million, or 51 cents per diluted share, a 16 percent increase over last year.

Nine Months Results
Sales increased 4.5 percent to $2 billion, including $56 million from Ebuys. Comparable sales decreased by 1.6 percent compared to last year’s increase of 0.9 percent.

Reported net income was $94 million, or $1.14 per diluted share, including pre-tax charges of $11.5 million, or 9 cents per share, from the Ebuys acquisition, and $4.1 million, or 3 cents per share, from restructuring costs. Adjusted net income was $103.6 million, or $1.26 per diluted share, excluding costs related to the Ebuys acquisition and the company’s restructuring costs.

Third Quarter Balance Sheet Highlights

Cash, short-term and long-term investments totaled $216 million compared to $397 million in the third quarter last year. The lower cash balance reflects the company’s share repurchase activity totaling $159 million in the last four quarters, the funding of its acquisition of Ebuys totaling $59.5 million and capital spending totaling $94.7 million in the last 12-month period.

The company repurchased 2 million shares for $42.7 million during the third quarter. Inventories were $563 million compared to $521 million last year, including Ebuys inventory of $35 million. On a cost per square foot basis, DSW inventories declined 3.5 percent, reflecting lower clearance levels and opportunistic buys.

Regular Dividend
DSW Inc.’s board of directors declared a quarterly cash dividend payment of 20 cents per share. The dividend will be paid on December 30, 2016 to shareholders of record at the close of business on December 16, 2016.

Fiscal 2016 Annual Outlook
The company increased its full-year earnings guidance of $1.35 to $1.45 per share. Previously, the full-year earnings guidance was $1.32 to $1.42 per share. Guidance excludes the impact of purchase price accounting, transaction costs and the fair market value accounting related to the acquisition of Ebuys and restructuring charges.