DSW Inc. reported earnings rose 14.0 percent in its third quarter ended Oct. 27 while same-store revenues decreased 0.7 percent. The family shoe chain now expects flat same-store growth for the year, down from
expectations of growth in the low single digit range. But it kept its
EPS guidance the same.

Highlights of the quarter:

  • Third quarter Reported sales increase 6.8 percent to $633 million; comparable sales decrease 0.7 percent
  • First nine months Reported sales increase 8.0 percent to $1.80 billion; comparable sales increase 0.2 percent
  • Third quarter Reported EPS rises to $0.60 per share on a post-split basis, including net income of $0.01 per share from our luxury test
  • Third quarter Adjusted EPS rises to $0.58 per share on a post-split split basis ($1.17 on a pre-stock split basis), an increase of 14 percent over last year
  • Raises full year Adjusted EPS guidance of $1.80 to $1.90 per share on a post-split basis, assuming flat same store sales growth
  • Board of Directors approve a quarterly dividend of $0.125 per share

Mike MacDonald, President and Chief Executive Officer states, “A solid increase in total sales combined with disciplined execution and inventory management allowed us to increase our Adjusted earnings per share by 14 percent. We achieved our highest level of profitability in the third quarter while navigating through a promotional environment.  We were encouraged by the improvement in traffic and sales at the end of the quarter, as the fall selling season got off to a delayed start.”

MacDonald added, “During the quarter we opened 16 new stores, including two small format stores, advanced our omni-channel work and implemented a number of systems initiatives. For the full year, we expect Adjusted EPS to range from $1.80 to $1.90 per share based on flat same store sales and 4 percent to 5 percent increase in Adjusted sales.”

Third Quarter Operating Results

Reported sales increased 6.8 percent to $633 million compared to last year's third quarter sales of $593 million.
For the thirteen week period ended November 2, 2013, comparable sales decreased by 0.7 percent. This follows an increase of 6.3 percent during the thirteen week period ended October 27, 2012.

Reported net income was $55.0 million, or $0.60 per diluted share on 92.1 million weighted average shares outstanding, which included net after-tax income of $1.4 million, or $0.01 per share, from our luxury test.  This compares to Reported net income in the third quarter of 2012 of $50.1 million, or $0.55 per diluted share, which included a $3.6 million award, or $0.04 per share, resulting from the 2005 credit card litigation, as well as $0.2 million in legacy charges from RVI.

Net income, adjusted for the results of our luxury test and legacy charges from RVI, was $53.6 million, or $0.58 per diluted share on 92.1 million weighted average shares outstanding. This compares to Adjusted net income for the same period last year of $46.6 million, or $0.51 per diluted share, on 91.0 million weighted average shares outstanding. 

Nine Months Ended November 2, 2013 Operating Results

Reported sales increased 8.0 percent to $1.8 billion compared to last year's sales of $1.7 billion.
For the thirty-nine week period ended November 2, 2013, comparable sales increased by 0.2 percent. This follows an increase of 6.1 percent during the thirty-nine week period ended October 27, 2012.

Reported net income was $123 million, or $1.34 per diluted share, on 91.8 million weighted average shares outstanding, which included a net after-tax loss of $11.5 million, or $0.13 per share, from our luxury test, and a net after-tax charge of $9.4 million, or $0.10 per share, from the termination of the pension plan assumed in conjunction with the RVI merger. This compares to Reported net income in the same period last year of $119.3 million, which included $5.2 million in after-tax non-cash charges related to RVI and a $3.6 million after-tax award from credit card litigation. Reported EPS for the thirty-nine week period ended October 27, 2012 was $1.32 per share.

Net income, adjusted for the net loss from our luxury test and legacy charges from RVI, was $144.1 million, or $1.57 per diluted share, on 91.8 million weighted average shares outstanding. This compares to Adjusted net income for the same period last year of $120.8 million, or $1.33 per diluted share, on 90.8 million weighted average shares outstanding.

Third Quarter Balance Sheet Highlights

Cash, short term and long term investments totaled $522 million compared to $430 million in the third quarter last year.

Inventories were flat at $424 million compared to $422 million during the third quarter last year, in line with expectations. On a cost per square foot basis, DSW segment inventories decreased by 2.2 percent at the end of quarter.

Regular Dividend

On November 26, 2013, DSW's Board of Directors declared a quarterly cash dividend payment of $0.125 per share. The dividend will be paid on December 31, 2013 to shareholders of record at the close of business on December 19, 2013.

Fiscal 2013 Annual Outlook

For the fifty-two week fiscal year ended February 1, 2014, the Company expects Adjusted earnings per share to range from $1.80 to $1.90 per share. This assumes flat same store sales and adjusted sales growth of 4 percent to 5 percent for the current fifty-two week period compared to the fifty-three week period ended February 2, 2013. Excluding the sales of $32 million from the fifty-third week in fiscal 2012, full year Adjusted sales growth for fiscal 2013 is expected to increase in the range of 6 percent to 7 percent.

DSW INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



Thirteen weeks ended

Thirty-nine weeks ended


November 2,

2013

October 27,

2012

November 2,

2013

October 27,

2012

Net sales

$

632,976

$

592,734

$

1,796,401

$

1,663,524

Cost of sales

(420,106)

(392,563)

(1,217,092)

(1,110,518)

Gross profit

212,870

200,171

579,309

553,006

Operating expenses

(124,614)

(121,734)

(382,786)

(355,775)

Change in fair value of derivative instruments

–

–

–

(6,121)

Operating profit

88,256

78,437

196,523

191,110

Interest income, net

1,036

2,575

1,857

3,538

Income from continuing operations before income taxes

89,292

81,012

198,380

194,648

Income tax provision

(34,331)

(30,897)

(75,184)

(76,608)

Income from continuing operations

54,961

50,115

123,196

118,040

Total income from discontinued operations, net of tax

–

–

–

1,253

Net income

$

54,961

$

50,115

$

123,196

$

119,293









Diluted shares used in per share calculations:

92,090

91,046

91,813

90,346









Diluted earnings per share:







Diluted earnings per share from continuing operations

$

0.60

$

0.55

$

1.34

$

1.31

Diluted earnings per share from discontinued operations

$

–

$

–

$

–

$

0.01

Diluted earnings per share

$

0.60

$

0.55

$

1.34

$

1.32