DSW Q2 Net Income Out-Paces Estimates

DSW Inc. net income was $15.3 million on net sales of $301.3 million for the second quarter, compared with net income of $9.3 million on net sales of $276.2 million for the comparable period last year. Diluted earnings per share were $0.35 for the second quarter of 2006 compared with $0.28 for last year’s second quarter.

The second quarter 2005 results include $3.9 million of interest expense on a dividend note to the Company’s controlling shareholder, Retail Ventures, Inc. After adjusting for the dividend interest and the significant increase in shares as a result of the Company’s initial public offering in June 2005, pro forma net income for the second quarter of 2005 was $11.6 million, or $0.26 per share. The exhibit at the end of this release reconciles the non-GAAP pro forma net income and diluted earnings per share to the reported net income and diluted earnings per share for second quarter 2005.

Comparable store sales for the second quarter of 2006 increased 2.2% compared with the same period last year.

For the six months ended July 29, 2006, net income was $32.9 million on net sales of $617.8 million, compared with net income of $16.2 million on net sales of $558.0 million for the comparable period last year.

Diluted earnings per share for the six months ended July 29, 2006, were $0.74 compared with $0.53 for the same period last year.

The fiscal 2005 six-month results include $6.6 million of interest expense on a dividend note to the Company’s controlling shareholder, Retail Ventures, Inc., and $6.5 million for the accrual for losses associated with the data theft announced March 2005. After adjusting for the dividend interest, the data theft accrual and the significant increase in shares as a result of the Company’s initial public offering in June 2005, pro forma net income for the fiscal 2005 six-month period was $24.1 million, or $0.55 per share. The exhibit at the end of this release reconciles the non-GAAP pro forma net income and diluted earnings per share to the reported net income and diluted earnings per share for the fiscal 2005 six-month period.

Comparable store sales for the six months ended July 29, 2006 increased 3.2% compared with the same period last year.

The Company reiterated its previous estimate for fiscal 2006 annual diluted earnings per share of $1.24 to $1.27. Comparable store sales are projected to increase 3-5% and the Company plans to open 30 DSW stores during the year.

                                   DSW INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
               (Dollars in thousands, except per share amounts)
                                 (Unaudited)


                            Three Months Ended        Six Months Ended
                          July 29,     July 30,     July 29,     July 30,
                            2006          2005         2006         2005

    Net sales             $301,302     $276,211     $617,789     $558,017
    Cost of sales         (216,200)    (199,848)    (439,400)    (398,856)
    Gross profit            85,102       76,363      178,389      159,161
    Operating expenses     (62,005)     (55,675)    (127,403)    (123,420)
    Operating profit        23,097       20,688       50,986       35,741
    Interest income
     (expense), net          1,975       (5,012)       3,299       (8,533)
    Earnings before income
     taxes                  25,072       15,676       54,285       27,208
    Income tax provision    (9,731)      (6,425)     (21,425)     (10,977)
    Net income             $15,341       $9,251      $32,860      $16,231

    Basic and diluted
     earnings per share:
        Basic                $0.35        $0.28        $0.75        $0.53
        Diluted              $0.35        $0.28        $0.74        $0.53

    Shares used in per share
     calculations:
        Basic               43,909       33,390       43,902       30,546
        Diluted             44,210       33,472       44,177       30,588