DSW Inc. reported net income, adjusted for one-time items, reached $46.6 million, or $1.02 per share, in the third quarter, up 17.1 percent from $39.8 million, or 88 cents, a year ago. Wall Street’s consensus estimate was 89 cents a share.
Reported net income was down 6.7 percent to $50.1 million, or $1.10. The latest period included a $3.6 million award resulting from the 2005 credit card litigation while the year-ago period included a non-cash benefit of $13.9 million related to its merger with RVI.
Sales climbed 11.7 percent to $592.7 million. Comparable sales increased 6.3 percent on top of a 5.2 percent gain for the third quarter of 2011.
Comps for its DSW segment, which includes dsw.com, were up 6.6 percent. All four of its store comp drivers – traffic, conversion, average unit retail, and units per transaction saw increases for the quarter.
“We have a healthy mix of selling in both regular and clearance priced merchandise,” said Mike MacDonald, DSW’s president and CEO, on a conference call with analysts. “We also had a nice balance in our performance by store region, with all regions achieving positive comp sales growth.”
Women’s Footwear, its largest category, grew by 4 percent. Athletics gained 9 percent. Men's Footwear and Accessories, both targeted areas for penetration growth, grew by 11 percent and 13 percent respectively. Private brand penetration increased to 11.4 percent from 10.3 percent last year.
Women's Boots were flat with fashion boots performing better than functional boots, and short booties performing better than tall-shafted boots. Said MacDonald, “Based on how boot sales ebbed and flowed throughout the quarter, we interpret this mix of selling to be primarily reflective of the mostly warm weather we experienced in the third quarter of this year.”
Gross margins decreased 20 basis points to 33.8 percent. A 40 basis point decrease in merchandise margin was driven in part to incremental certificate redemptions from its rewards members. The SG&A rate as a percentage of sales decreased by 50 basis points to 21.2 percent, despite a $4.4 million increase in pre-opening costs associated with adding 26 new stores in the quarter.
Inventories increased 11.8 percent, in line with expectations. On a cost per square foot basis, inventories in DSW stores decreased 1 percent at the end of quarter.
Hurricane Sandy led to the temporary closing of about 100 stores and DSW “dropped several million dollars in sales” against its forecast that it doesn’t expect it will be able to recover. Regardless, DSW revised its full-year adjusted EPS guidance to $3.30 to $3.40, a 5-cent increase in the low end of its range. The midpoint of this new range represents a 12 percent growth over last year's $3.00 per share. The guidance is based on mid single-digit comps for the full year, and the opening of 39 new stores. DSW’s management also indicated it expects to open 25 to 30 stores in 2013.
