Boosted by sharp sales and margin growth, DSW Inc.'s third quarter earnings doubled and blew past Wall Street expectations. Earnings reached $26.6 million, or 60 cents a share, up from $13.2 million, or 30 cents, a year ago. The Street's consensus had been 46 cents.
Sales increased 14% to $444.6 million on an 8.7% same-store jump. By segment, comps jumped 9.8% at DSW while sliding 1.5% at its leased business.
On a conference call with analysts, CEO Mike MacDonald said traffic in the quarter improved “quite dramatically” due to an improved external environment, including “friendly weather.” Along with a bigger inventory commitment, cooler weather drove an almost 50% comp jump in women's boots. Comp gains were also seen in the balance of women's footwear, men's footwear, athletic footwear and accessories
MacDonald also believes the rebound in financial markets is helping the consumer psyche and this has “disproportionately” boosted the footwear category.
MacDonald also said the consumer's current focus on saving time and money “really fits perfectly with the DSW formula.” A good response was also seen to DSW's Talking Shoes TV campaign.
Gross margin jumped 520 basis points to 33.1% of sales in the quarter. The merchandise margin rate increased 220 basis points to 46.3% of sales due to “significant regular price sell-through.” Occupancy expense rates decreased due to the comps gains and rent concessions.
The SG&A rate increased 50 basis points to 23.0% in Q3, but would have decreased 160 basis points excluding the increase in the year-to-date bonus accrual.
The promising Q3 results led DSW to boost its earnings range for the year by 20 cents to a range of 90 cents to $1 a share. Same-store sales are now expected to be up 1%, up from flat comps previously.