DSW Shoe Warehouse posted strong sales increases for both total sales and comps in the first quarter, keeping the prospects for a successful IPO spin-off alive despite problems with credit theft and a related lawsuit.

The family footwear division of Retail Ventures, Inc. posted $281.8 million in net sales for the period ended April 30, a 21.2% increase over last year’s $232.6 million. Comparable store sales in the quarter improved 4.4% on top of an 11% gain for the same period last year. The increase in segment sales includes a net increase of 26 DSW stores, which added $32.6 million to the top line. Gross profit was 43.6% of sales, a 20 point increase from 43.4% last year. SG&A expenses increased 80 basis points to 38.3% of sales from 37.5% in the year-ago quarter. Operating profit for the quarter increased 9.4% to $15.1 million from $13.8 million in the first quarter of 2004.

During the quarter, DSW accrued an estimated liability of approximately $6.5 million to $9.5 million related to the theft of credit card and other purchase information. The theft covered all customers who made purchases at 108 DSW stores during a three-month period from mid-November 2004 to mid-February 2005. Transaction information involving approximately 1.4 million credit cards was obtained. In addition, data from transactions involving approximately 96,000 checks were stolen. On June 6, 2005, the Ohio Attorney General brought an action against DSW seeking to require the company to notify all customers affected by the theft who had not yet been notified.

Despite the credit theft and ensuing lawsuit, DSW still plans to complete its IPO in fiscal 2005. After the IPO, Retail Ventures expects to own a majority of the outstanding common shares of DSW. According to the filing with the SEC, DSW will use a portion of the proceeds from the IPO to repay a $165,000 inter-company debt owed to RVI. RVI will use these funds to pay down its $100 million term loan facility and a portion of its revolving credit facility, which it will refinance at the time of the IPO.


>>> You have to wonder what happens to RVI shares after this one leaves the stable