13 Dec DSW Smashes Street Targets In Q3
DSW Inc. lifted its annual guidance after reporting adjusted earnings in the third quarter handily topped Wall Streets’ targets on a 7.3 percent same-store gain. The footwear off-pricer also said it expects the Camuto Group acquisition to contribute pro forma double-digit EPS accretion by 2020.
Third Quarter Highlights
- Third quarter revenue increased 17.2 percent to $833 million; comparable sales increased 7.3 percent. Wall Street expected revenues of $794.4 million on average.
- Third quarter Reported EPS of 48 cents per diluted share, including net charges of 22 cents per diluted share from adjusted items;
- Third quarter Adjusted EPS of 70 cents per diluted share, including a loss of 2 cents per share from the wind down of operations for the Town Shoes banner. Wall Street’s consensus estimate had been 53 cents;
- Raised 2018 guidance for Adjusted EPS for ongoing business to $1.70 to $1.85 per diluted share, including 5 to 10 cents per share loss from the Camuto Group acquisition;
- Guidance excludes year-to-date losses of 7 cents per share from the wind down of operations for business exits;
Camuto Group acquisition is expected to contribute pro forma double-digit EPS accretion by 2020
- Board of Directors declared quarterly dividend of 25 cents per share;
Chief Executive Officer, Roger Rawlins stated, “Our investments in merchandising, marketing and talent drove continued top line momentum, with comp growth across all businesses. Additionally, the nationwide roll-out of DSW kids drove the most successful back-to-school season in our history and our recently acquired Canadian business delivered the best results in the last five years.”
“Our acquisition of Camuto Group brings powerful design and sourcing capabilities in-house and new streams of revenue from one of the leading lifestyle brands in fashion footwear. Integration efforts are on track, with supply chain and working capital improvements paving the way for a return to profitability. We have transformed our company to one of North America’s largest footwear operators, with vertical product development expertise combined with a vast distribution network. This will accelerate market share growth by creating value for more customers and increasing our competitive differentiation,” Rawlins added.
Third Quarter Operating Results
- Total revenue increased by 17.2 percent to $833 million, including $80.1 million from the consolidation of the Canadian retail business. Wall Street expected revenues of $794.4 million on average.
- Comparable sales increased 7.3 percent for the same 13-week periods ended November 3, 2018 and November 4, 2017. Comparable sales exclude results from the Canada Retail segment
- Reported gross profit, as a percent of sales, increased by 320 bps, due to favorable merchandise margin.
- Reported operating expenses, as a percent of sales, increased by 540 bps, driven by planned marketing and labor investments, lease exit costs and acquisition-related costs.
- Reported net income was $39.3 million, or $0.48 per diluted share, including pre-tax charges totaling $22.9 million, or $0.22 per diluted share, from transaction costs related to acquisition activity, and lease exit costs partially offset by a favorable adjustment in goodwill impairment resulting from a change in purchase accounting.
- Adjusted net income was $57.9 million, or $0.70 per diluted share, a 56 percent increase to last year. Adjusted EPS includes a loss of $0.02 per share from the wind down of operations for the Town Shoes banner. Wall Street’s consensus estimate had been 53 cents.
Nine Months Operating Results
- Total revenue increased 12.2 percent to $2.3 billion, including $152.6 million from the consolidation of the Canadian retail business.
- Comparable sales increased 6.3 percent compared to last year’s 1.0 percent decrease.
- Reported gross profit, as a percent of sales, increased by 220 bps, driven by favorable merchandise margin and business mix.
- Reported operating expenses, as a percent of sales, increased by 290 bps, due to planned marketing and labor investments, lease exit costs, acquisition-related costs and restructuring expenses.
- Reported net income was $25.3 million, or $0.31 per diluted share, including pre-tax charges totaling $121.3 million, or $1.41 per diluted share, related to acquisition activity, impairment charges, lease exit costs, restructuring expenses and foreign exchange loss.
- Adjusted net income was $140.3 million, or $1.72 per diluted share, a 51 percent increase to last year. Year-to-date Adjusted EPS includes a loss of $0.07 per share from the wind down of operations for the Town Shoes banner and Ebuys.
Third Quarter Balance Sheet Highlights
- Cash and investments totaled $294 million compared to $330 million last year.
- The company ended the quarter with inventories of $624 million compared to $547 million last year. Excluding inventories from the Canadian acquisition, inventories per square foot increased by 10.4 percent and increased by 7.9 percent on a two-year basis, in line with the company’s two-year comparable sales growth of 6.9 percent.
- Regular Dividend DSW Inc.’s Board of Directors declared a quarterly cash dividend of $0.25 per share. The dividend will be paid on January 4, 2019 to shareholders of record at the close of business on December 21, 2018.
Fiscal 2018 Annual Outlook
The company raised its full year outlook for Adjusted EPS in the range of $1.70 to $1.85 per diluted share, compared to its previous range of $1.60 to $1.75 per diluted share. Guidance does not include charges related to exit costs, restructuring or acquisition-related expenses or the impact of exited businesses. The company noted the impact of the Camuto Group acquisition reflects the seasonality of the business and the timing of the integration process, which is expected to yield benefits starting in 2019.