DSW Inc. reported first quarter net sales increased 12.0 percent to $503.6 million from $449.5 million in the first quarter of 2010. Comparable sales increased 10.8 percent on top of a 16.2 percent increase in comps in the first quarter of 2010. Net earnings rose 27.2 percent to $38.4 million, or 85 cents per diluted share
The latest quarter included charges associated with the pending merger with RVI that impacted first quarter earnings per diluted share by approximately $0.02. In the year-ago quarter, net income was $30.2 million, or 67 cents per share.
Gross profit margin expanded 140 basis points to 34.2 percent of net sales.
Operating profit increased 29 percent to $63.3 million, or 12.6 percent of net sales, which included $1.4 million in transaction costs related to the pending merger with RVI. This compares to operating profit of $49.1 million, or 10.9 percent of net sales, in the first quarter of 2010;
“We have had a strong start to the year, recording double-digit gains in net sales and comparable sales and a 29 percent increase in operating profit as compared to the first quarter last year, continuing our stellar performance from 2010,” stated Mike MacDonald, president and chief executive officer, DSW Inc. “We attribute our ongoing strength to the successful execution of our key growth initiatives, and the increasing importance and attachment to the DSW brand by consumers. During the quarter, DSW achieved balanced growth across categories and genders with accessories and men’s leading the way. Our new stores performed well and we were also pleased with the growth in our leased business division, which generated its highest quarterly sales in over four years.”
“This is an exciting time in our history as we complete the merger of RVI, which will simplify our corporate structure and increase our public float,” MacDonald continued. “We are optimistic about our business as we begin the second quarter and are pleased to raise our annual guidance. Consumers are recognizing DSW for our consistent ability to present trend-right styles and terrific value in a conveniently located and compelling store format. We expect to capitalize on our strong positioning with powerful brand marketing and merchandising while continuing our systems enhancements in order to improve customer satisfaction.”
First Quarter Balance Sheet Highlights
Cash and investments totaled $393 million compared to $304 million at the end of the first quarter 2010, and the company has no debt;
Inventories were $335 million compared to $287 million at the end of the first quarter of 2010. Inventory per square foot increased 14 percent compared to the first quarter of 2010. This increase in inventory reflects anticipated sales trends, inclusive of dsw.com and new store openings, as well as the impact of opportunistic pre-buys for fall and receipt timing.
During the first quarter of 2011 the company opened seven new stores, ending the quarter with 318 stores and 7.1 million gross square feet in operation. The company expects to open a total of 18 DSW stores in fiscal 2011.
Pending Merger Transaction
On February 8, 2011, the company and its largest shareholder, Retail Ventures, Inc. (NYSE: RVI), announced the two companies had signed a definitive merger agreement providing for RVI to become a wholly-owned subsidiary of DSW in an exchange of shares at an exchange ratio of 0.435 DSW shares per each RVI share. On May 19, 2011 the merger was approved by DSW and RVI shareholders and is expected to close on May 26, 2011. After the merger, prior period financial information presented in the DSW consolidated financial statements will generally reflect the historical activity of RVI.
Fiscal 2011 Annual Outlook
The company is increasing its annual guidance. DSW currently estimates annual comparable sales to increase in the mid single-digit range and expects annual diluted earnings per share in the range of $2.65 to $2.80 for fiscal 2011, excluding any impact from the pending merger with RVI.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Thirteen weeks ended
Thirteen weeks ended
April 30, 2011
May 1, 2010
Cost of sales
Interest income, net
Earnings before income taxes
Income tax provision
Basic and diluted earnings per share:
Shares used in per share calculations: