DSW Inc. reduced its full-year guidance after first-quarter earnings came in lower than expected.
Reports First Quarter 2016 Financial Results
- First quarter sales increase 3.9 percent to $681 million; comparable sales decrease 1.6 percent
- Reported EPS of $0.36 per share, including purchase accounting, transaction costs and change in fair value of contingent consideration associated with the acquisition of Ebuys, Inc. (“Ebuys”)
- Adjusted EPS of $0.40 per share
- Full year Adjusted EPS guidance of $1.32 to $1.42 per share
- Board of Directors approves a quarterly dividend of $0.20 per share
Roger Rawlins, Chief Executive Officer stated, “We have reduced our sales and earnings guidance to reflect the current trend of our business in a challenging retail environment. This is the prudent action to take so that inventory, expenses and capital investments are aligned to maximize profitability and positioned to expand earnings as our trend improves.”
Rawlins also stated, “Over the past three years, we have invested heavily in technology, stores, marketing and support services. These investments have driven sales, but we haven’t grown our bottom line. We have begun an assessment of our cost structure to improve earnings and reinforce our competitive position in a rapidly changing environment.”
First Quarter Operating Results
- Reported net income was $30.0 million, or $0.36 per diluted share, including pre-tax charges of $4.5 million or $0.04 per share from purchase accounting, transaction costs and fair market value accounting charges resulting from the acquisition of Ebuys.
- Adjusted net income was $32.8 million, or $0.40 per diluted share, excluding acquisition related costs. Wall Street’s consensus estimate had been 46 cents.
- Sales increased 3.9 percent to $681 million, including $15.1 million from Ebuys.
- Comparable sales decreased by 1.6 percent compared to last year’s increase of 5.1 percent.
- Adjusted gross profit decreased by 250 bps due to higher markdowns and the addition of Ebuys.
- Adjusted operating expense rate deleveraged by 90 bps due to increased marketing spend, technology investments and higher corporate expenses.
- Non-operating income last year included a foreign exchange benefit of $3.3 million or $0.02 per share related to the company’s Canadian dollar holdings.
- Tax rate increased by 80 bps due primarily to a favorable discrete item last year.
First Quarter Balance Sheet Highlights
- Cash, short-term and long-term investments totaled $238 million compared to $456 million in the first quarter last year. The lower cash balance reflects the company’s share repurchase activity totaling $180 million in 2015 and funding of its acquisition of Ebuys totaling $60.4 million in March 2016.
- Inventories were $563 million compared to $512 million at the end of the first quarter last year. Excluding Ebuys inventory of $27 million, total inventories increased by 4.7 percent. On a cost per square foot basis, DSW inventories increased by 0.6 percent.
DSW Inc.’s Board of Directors declared a quarterly cash dividend payment of $0.20 per share. The dividend will be paid on June 30, 2016 to shareholders of record at the close of business on June 16, 2016.
Fiscal 2016 Annual Outlook
The company revised its full year earnings guidance to $1.32 to $1.42 per share, reflecting expectations for softer sales for the balance of the year in a challenging retail environment. Guidance does not include the impact of purchase price accounting, transaction costs and fair market value accounting for Ebuys contingent consideration of approximately $0.11 to $0.13 per share. This assumes approximately 6 percent revenue growth driven by a comparable sales decline in the 1 percent to 2 percent range.
The table below compares changes to the company’s updated guidance. Adjusted EPS excludes transaction costs, purchase accounting and fair market value accounting related to Ebuys.