DSW Inc. once again lowered its fiscal full year earnings guidance, citing one-time costs and a downturn in consumer spending. The footwear retailer said it now expects to earn 62 cents to 72 cents per share for the year, down from its August estimate of earnings of 75 cents to 85 cents per share. The estimate includes a severance charge to be taken in the fourth quarter and uncollectible fees from the bankruptcy of Value City Department Stores.
Total sales were up 6.5% to $391.4 million for the third quarter. Comp store sales declined 4.1% for the period on top of a 3.0% decline in Q3 last year, reflecting lower traffic. DSW noted that its conversion rate on the mall traffic was up. Gross margins contracted 120 basis points to 27.9% of sales. Merchandise margin rates in the quarter improved 10 basis points to 44.1% of sales due to tight inventory controls but the gross margin rate decline reflects the negative comp. Net income fell 41.3% to $13.2 million, or three cents per diluted share.
On its third quarter conference call, Douglas Probst, DSW's CFO, said that the reduction in guidance was “purely an expense-driven adjustment.” He added, however, that there is some “additional risk” in the fourth-quarter in terms of retail spending as Thanksgiving approaches.
The third quarter comp decline of 4.1% reflected lower traffic but DSW noted that its conversion rate on the mall traffic was up.
Debbie Ferree, vice chairman and chief merchandising officer, noted that the comp in athletics was “just a little bit worse” than the overall comp decline, but women's athletic comps were down 7%, partly reflecting a shift toward technical products from fashion-oriented ones. Men's was down 1%.
Ferree noted that the company was able to capitalize on a “large opportunistic purchase” and is currently running a promotion for “compelling athletic” brands at $29.95 to $39.95 and savings of 60% off.
