DSW Inc. reported fourth-quarter earnings grew 40.4 percent on an adjusted basis as improved margins and expense controls offset a 7 percent drop in same-store sales.
Roger Rawlins, chief executive officer stated, “Our fourth quarter continued our return to year over year profitability growth, with top line results that met our comp guidance. Inventory management and a product-focused campaign drove significantly higher gross margin, which, coupled with better expense control, resulted in a 22 percent increase in adjusted earnings per share this fall season.”
“After making fundamental changes to our core business last year, we are laser focused on driving comp growth through our merchandise and allocation initiatives and the elevation of our customer’s digital experience. Furthermore, we are building a foundation to support the growth of Ebuys and Town Shoes and to leverage synergies across all of our retail brands,” Rawlins added.
The company achieved several important milestones in fiscal 2016:
• Total company revenues hit a new high of $2.7 billion;
• Opened the company’s 500th location in the United States;
• Successfully expanded DSW’s presence in Canada with 23 locations, with plans to open the company’s first two stores outside North America;
• Drove robust growth in digital demand;
• Established DSW’s presence in new digital marketplaces with the acquisition of Ebuys, Inc.;
• Successfully launched DSW kids shops at 227 locations with plans to open 77 additional locations in 2017;
• Invested in talent across the organization to form strong, high performing teams;
• Completed a comprehensive expense management initiative that identified $25 million in cost savings on an annualized basis;
• Returned $115 million to shareholders, including $65 million in dividends and $50 million in share repurchases.
Fourth Quarter Operating Results
• Sales increased 0.4 percent to $674.6 million, including $27.9 million of revenues from Ebuys.
• Comparable sales decreased 7 percent compared to last year’s 0.7 percent increase.
• Reported gross profit increased by 50 bps, driven by a significant reduction in markdowns and favorable sourcing costs, partially offset by the expected deleverage in occupancy expense, the increased mix of acquisition revenues, and 10 bps of inventory step up costs related to Ebuys.
• Reported operating expenses improved by 50 bps, with reductions in store related expenses and corporate overhead, partly offset by 20 bps from the amortization of Ebuys intangibles and restructuring expenses.
• Reported net income was $30.5 million, or $0.38 per diluted share, which included a net favorable adjustment of $0.18 per share related to the reduction of its contingent consideration liability, the amortization of acquired intangibles and inventory step-up costs related to Ebuys, and restructuring expenses.
• Adjusted net income was $16.5 million, or 20 cents per diluted share, an increase of 43 percent over last year. Wall Street’s consensus estimate had been 16 cents.
Full Year Operating Results
• Sales increased 3.5 percent to $2.7 billion, including $83.9 million from the company’s acquisition of Ebuys.
• Comparable sales decreased by 3 percent compared to last year’s 0.8 percent increase.
• Reported net income was $124.5 million, or $1.52 per diluted share, which included a net favorable adjustment of $0.06 per share related to the reduction of its contingent consideration liability, the amortization of acquired intangibles, transaction costs and inventory step-up costs related to Ebuys, and restructuring expenses.
• Adjusted net income was $120.1 million, or $1.46 per diluted share, a 5 percent decrease from last year.
Fourth Quarter Balance Sheet Highlights
• Cash, short-term and long-term investments totaled $287 million compared to $330 million the previous year.
• Inventories were $500 million compared to $484 million last year, including $31 million from Ebuys. On a cost per square foot basis, DSW inventories declined by 8 percent.
• The company repurchased 0.4 million shares for $7.3 million this quarter. For the full year, the company repurchased a total of 2.4 million shares for a total of $50 million and has $33.5 million remaining under its share repurchase program.
Regular Dividend DSW Inc.’s Board of Directors declared a quarterly cash dividend of $0.20 per share. The dividend will be paid on March 31, 2017 to shareholders of record at the close of business on March 17, 2017.
Fiscal 2017 Annual Outlook
For the fifty-three week period ending February 3, 2018, the company expects revenue growth of 3 percent to 5 percent, with comparable sales to range from a flat to low single digit decline compared to the prior year. The company expects to open 12 to 15 net new locations.
Full year adjusted earnings per share is expected to range between $1.45 to $1.55 per diluted share, assuming a tax rate of 39 percent and 81 million shares outstanding. Guidance includes the estimated impact from the discontinuation of the company’s leased business with Gordmans up to 10 cents per share. Guidance does not include the impact of acquisition related items, including amortization of intangible assets and changes in the fair value of the contingent consideration liability.