DSW Inc. reported third-quarter earnings declined 9.8 percent to $49.6 million, or 55 cents a share. But earnings came in better than Wall Street estimates and sales in all major categories accelerated compared to the first half. Comparable sales increased by 2.6 percent.
Mike MacDonald, president and chief executive officer stated, ''We were pleased with the progress we made in the quarter, particularly the improvements in top line performance. Sales in all major categories accelerated compared to first half performance. We are especially encouraged by the performance of women's footwear, which posted its first positive comparable sales increase since the second quarter of 2013. The merchandise initiatives we began to implement at the start of the year are gaining traction."
''Over the past twelve months, DSW has also made significant inroads in becoming even more customer centric in the way we operate. Customers now have visibility and access to our full assortment of choices regardless of how and where they are shopping. We have also launched new technologies that make it easier for online customers to shop and pay for their purchases. There are many more improvements to be made to create a seamless and relevant shopping experience for DSW customers, but we are pleased with our progress to date,'' Mr. MacDonald added.
Third Quarter Operating Results
Reported sales increased 5.8 percent to $670 million compared to last year's sales of $633 million.Adjusted sales increased 7.2 percent to $670 million compared to last year's sales of $625 million, which excluded sales from the Company's luxury test.Comparable sales increased by 2.6 percent compared to last year's decrease of 0.7 percent.Gross margin declined 100 bps, of which 55 bps was due to asset impairment.Reported net income was $49.6 million, or $0.55 per diluted share, on 90 million shares, which includes a RVI tax provision adjustment. This compares to Reported net income in the third quarter of 2013 of $55.0 million, or $0.60 per diluted share, on 92 million shares, which included a net after-tax income of $1.4 million, or $0.01 per share, from the Company's luxury test.Adjusted net income was $50.4 million, or $0.56 per diluted share, on 90 million shares, which includes a one-time charge of $0.03 per share from asset impairment. This compares to Adjusted net income for the same period last year of $53.6 million, or $0.58 per diluted share, on 92 million shares. Wall Street's consensus estimate had been 51 cents a share.
Nine Months Ended November 1, 2014 Operating Results
Reported sales increased 3.3 percent to $1.86 billion compared to last year's sales of $1.80 billion.Adjusted sales increased 4.3 percent to $1.86 billion compared to last year's sales of $1.78 billion, which excluded sales from the Company's luxury test.Comparable sales decreased by 0.1 percent compared to last year's increase of 0.2 percent.Reported net income was $122.5 million, or $1.35 per diluted share, on 91 million shares. This compares to Reported net income in the same period last year of $123.2 million, or $1.34 per diluted share, on 92 million shares, which included a net after-tax loss of $20.9 million, or $0.23 per share, from the Company's luxury test and the termination of RVI's pension plan.Adjusted net income was $122.7 million, or $1.35 per diluted share, on 91 million shares. This compares to net income of $144.1 million, or $1.57 per diluted share, on 92 million shares, which excluded items related to our luxury test and the termination of RVI's pension plan.Third Quarter Balance Sheet Highlights
Cash, short term and long term investments totaled $427 million compared to $517 million in the third quarter last year.Inventories were $486 million compared to $424 million during the third quarter last year. On a cost per square foot basis, DSW inventories increased by 7.4 percent at the end of the quarter. A significant portion of this increase relates to opportunistic pre-buys to deliver strong brands and exceptional values to our customers in 2015. Excluding the increase in pre-buys, inventories on a cost per square foot increased by 3.8 percent. The company repurchased one million shares for approximately $30 million during the quarter, for a total of three million shares for approximately $87 million since the authorization of the program. This leaves approximately $13 million available on the Company's previous $100 million share repurchase authorization. On November 21, 2014, the Board of Directors authorized an additional $50 million under the Company's share repurchase program.Regular Dividend
On November 25, 2014, DSW's Board of Directors declared a quarterly cash dividend payment of $0.1875 per share. The dividend will be paid on December 31, 2014 to shareholders of record at the close of business on December 19, 2014.
Fiscal 2014 Annual Outlook
For the fifty-two week fiscal year ending January 31, 2015, the company expects Adjusted earnings per share to range from $1.55 to $1.65 per share compared to the previous guidance of $1.50 to $1.65 per share. This assumes slightly positive comparable annual sales growth and annual revenue growth in the mid-single digit range. This guidance includes a tax rate slightly below 39 percent and diluted shares outstanding of 90.5 million.
As of November 25, 2014, DSW operates 431 stores in 42 states, the District of Columbia and Puerto Rico, and operates an e-commerce site.
