DESIGNER BRANDS INC COLUMBUS, Ohio, Nov. 22, 2016 /PRNewswire/ -- DSW Inc. (NYSE: DSW), a leading branded footwear and accessories retailer, announced financial results for the thirteen-week period ended October 29, 2016, compared to the thirteen-week period ended October 31, 2015.
Roger Rawlins, Chief Executive Officer of DSW Inc. stated, "This quarter reflects the first step in our return to year over year earnings growth. After four consecutive declines, we reported a 16% increase in Adjusted Earnings Per Share this quarter. Tighter inventory management drove improvements in gross margin which, combined with effective expense management, resulted in an increase in net income. We've reduced clearance markdowns and we are positioned to generate more profitable sales in the holiday season."
Mr. Rawlins added, "Looking ahead, we remain steadfast in delivering consistent execution as we drive shareholder returns and capture market share in the long term."
Third Quarter Operating Results
-- Sales increased 4.7% to $697 million, including $21.3 million from
Ebuys.
-- Comparable sales decreased by 2.0% compared to last year's decrease of
3.9%.
-- Reported gross profit increased by 50 bps.
-- Adjusted gross profit increased by 60 bps driven by lower clearance
markdowns and last year's inventory valuation reserve offset by higher
shipping costs and the lower gross profit rate from Ebuys, which we
acquired in 2016.
-- Reported operating expense rate increased by 80 bps.
-- Adjusted operating expense rate increased by 40 bps, due to the accrual
for incentive compensation reversed last year and the favorable timing
of marketing expenses. Excluding the impact of incentive compensation,
Adjusted operating expense rate improved by 110 bps.
-- Reported tax rate increased by 30 bps to last year.
-- Reported net income was $39.0 million, or $0.47 per diluted share,
including pre-tax charges of $3.1 million, or $0.02 per share, from the
acquisition of Ebuys and restructuring costs of $1.3 million, or $0.01
per share.
-- Adjusted net income was $41.7 million, or $0.51 per diluted share, a 16%
increase over last year.
Nine Months Ended October 29, 2016 Results
-- Sales increased 4.5% to $2.0 billion, including $56.0 million from
Ebuys.
-- Comparable sales decreased by 1.6% compared to last year's increase of
0.9%.
-- Reported net income was $94.0 million, or $1.14 per diluted share,
including pre-tax charges of $11.5 million, or $0.09 per share, from the
Ebuys acquisition, and $4.1 million, or $0.03 per share, from
restructuring costs.
-- Adjusted net income was $103.6 million, or $1.26 per diluted share,
excluding costs related to the Ebuys acquisition and the Company's
restructuring costs.
Third Quarter Balance Sheet Highlights
-- Cash, short-term and long-term investments totaled $216 million compared
to $397 million in the third quarter last year. The lower cash balance
reflects the Company's share repurchase activity totaling $159 million
in the last four quarters, the funding of its acquisition of Ebuys
totaling $59.5 million and capital spending totaling $94.7 million in
the last twelve month period.
-- The company repurchased 2.0 million shares for $42.7 million during the
third quarter.
-- Inventories were $563 million compared to $521 million last year,
including Ebuys inventory of $35 million. On a cost per square foot
basis, DSW inventories declined 3.5% reflecting lower clearance levels
and opportunistic buys.
Regular Dividend
DSW Inc.'s Board of Directors declared a quarterly cash dividend payment of $0.20 per share. The dividend will be paid on December 30, 2016 to shareholders of record at the close of business on December 16, 2016.
Fiscal 2016 Annual Outlook
The Company increased its full year earnings guidance of $1.35 to $1.45 per share. Guidance excludes the impact of purchase price accounting, transaction costs and the fair market value accounting related to the acquisition of Ebuys and restructuring charges.
Webcast and Conference Call
To participate in the Company's live earnings conference call, log on to http://www.dswinc.com/ today at 8:30 a.m. Eastern Time, or call 1-888-317-6003 in the U.S. or 1-412-317-6061 outside the U.S. using passcode 9422868 approximately ten minutes prior to the start of the call. A telephone replay of this call will be available until 5:00 p.m. Eastern Time on December 6, 2016 and can be accessed by dialing 1-877-344-7529 in the U.S. or 1-412-317-0088 outside the U.S. and using passcode 10096038. An audio replay of the conference call will also be available at http://www.dswinc.com.
About DSW Inc.
DSW Inc. is a leading branded footwear and accessories retailer that offers a wide selection of brand name and designer dress, casual and athletic footwear and accessories for women, men and kids. As of November 22, 2016, DSW operates 500 stores in 43 states, the District of Columbia and Puerto Rico, and operates an e-commerce site, http://www.dsw.com, and a mobile website, http://m.dsw.com. DSW Inc. also supplies footwear to 396 leased locations in the United States and two e-commerce sites under the Affiliated Business Group. DSW Inc. also owns Ebuys, a leading off price footwear and accessories retailer operating in digital marketplaces in North America, Europe, Australia and Asia. For store locations and additional information about DSW Inc., visit http://www.dswinc.com. Follow DSW on Twitter at http://twitter.com/DSWShoeLovers and Facebook at http://www.facebook.com/DSW.
DSW INC.
Q3 2016 SEGMENT RESULTS
Net sales by segment
Thirteen weeks ended Thirty-nine weeks ended
October 29, 2016 October 31, 2015 % change October 29, 2016 October 31, 2015 % change
---------------- ---------------- -------- ---------------- ---------------- --------
(in thousands)
DSW segment $639,136 $628,778 1.6% $1,866,096 $1,833,572 1.8%
ABG segment 36,154 36,742 (1.6)% 114,738 114,640 0.1%
Other 21,326 - - % 55,993 - - %
------ --- ------ ---
DSW Inc. $696,616 $665,520 4.7% $2,036,827 $1,948,212 4.5%
Comparable sales change by reportable segment
Thirteen weeks ended Thirty-nine weeks ended
October 29, 2016 October 31, 2015 October 29, 2016 October 31, 2015
---------------- ---------------- ---------------- ----------------
DSW segment (1.8)% (3.9)% (1.5)% 0.8%
ABG segment (4.6)% (3.0)% (3.1)% 1.0%
DSW Inc. (2.0)% (3.9)% (1.6)% 0.9%
Reported gross profit by segment
Thirteen weeks ended Thirty-nine weeks ended
October 29, 2016 October 31, 2015 October 29, 2016 October 31, 2015
---------------- ---------------- ---------------- ----------------
DSW segment 31.9% 30.4% 30.7% 31.6%
ABG segment 21.7% 21.9% 22.6% 20.6%
Other (0.2)% - % 6.8% - %
DSW Inc. 30.4% 29.9% 29.6% 31.0%
Stores and square footage data
As of
October 29, 2016 October 31, 2015
---------------- ----------------
DSW stores open, end of period 498 465
DSW stores total square footage (in thousands) 10,273 9,785
Reported gross profit by segment
Thirteen weeks ended Thirty-nine weeks ended
October 29, 2016 October 31, 2015 October 29, 2016 October 31, 2015
DSW segment gross profit 31.9% 30.4% 30.7% 31.6%
DSW segment merchandise margin 45.0% 43.3% 44.0% 44.5%
Store occupancy expense 10.8% 10.7% 11.1% 10.8%
Distribution and fulfillment 2.3% 2.2% 2.2% 2.1%
expense
ABG segment gross profit 21.7% 21.9% 22.6% 20.6%
ABG segment merchandise margin 43.5% 43.3% 44.1% 43.3%
Store occupancy expense 20.7% 20.3% 20.4% 21.6%
Distribution and fulfillment 1.1% 1.1% 1.1% 1.1%
expense
Other gross profit(1) (0.2)% - % 6.8% - %
Other merchandise margin 27.7% - % 31.6% - %
Marketplace fees 12.4% - % 11.8% - %
Distribution and fulfillment 15.5% - % 13.0% - %
expense
(1) Reported Other gross profit for the three and nine months ended October 29, 2016 includes $0.5 million and $1.2 million,
respectively, related to the step-up of the value of Ebuys' inventory. Adjusted Other gross profit for the three and nine months
ended October 29, 2016 is 2.3% and 9.0%, respectively, and adjusted Other merchandise margin is 30.2% and 33.8%,
respectively.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Any statements in this release that are not historical facts, including the statements made in our "Fiscal 2016 Annual Outlook," are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on the Company's current expectations and involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These factors include, but are not limited to: our success in opening and operating new stores on a timely and profitable basis; maintaining strong relationships with our vendors; our ability to anticipate and respond to fashion trends; our success in meeting customer expectations; disruption of our distribution and/or fulfillment operations; continuation of agreements and the financial condition of our affiliated business and international partners; fluctuation of our comparable sales and quarterly financial performance; risks related to our information systems and data; failure to retain our key executives or attract qualified new personnel; our competitiveness with respect to style, price, brand availability and customer service; our reliance on our DSW Rewards program and marketing to drive traffic, sales and customer loyalty; uncertain general economic conditions; our reliance on foreign sources for merchandise and risks inherent to international trade; risks related to our handling of sensitive and confidential data; risks related to leases of our properties; risks related to prior and current acquisitions; foreign currency exchange risk; and risks related to our cash and investments. Additional factors that could cause our actual results to differ materially from our expectations are described in the Company's latest annual or quarterly report, as filed with the Securities and Exchange Commission. All forward-looking statements speak only as of the time when made. The Company undertakes no obligation to revise the forward-looking statements included in this press release to reflect any future events or circumstances.
DSW INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
October 29, 2016 January 30, 2016 October 31, 2015
---------------- ---------------- ----------------
Assets
Cash and equivalents $60,962 $32,495 $90,019
Short-term investments 78,512 226,027 -
Accounts receivable, net 21,363 15,464 18,264
Inventories 562,701 484,236 521,243
Prepaid expenses and other current assets 24,579 37,446 22,209
Total current assets 748,117 795,668 651,735
------- ------- -------
Property and equipment, net 381,218 374,241 364,253
Long-term investments 76,126 71,953 306,483
Goodwill 77,208 25,899 25,899
Deferred income taxes 21,103 21,815 34,031
Investment in Town Shoes 17,996 21,188 21,229
Note receivable from Town Shoes 50,579 44,170 45,930
Intangible assets 38,243 46 46
Other assets 21,325 14,129 8,422
------ ------ -----
Total assets $1,431,915 $1,369,109 $1,458,028
========== ========== ==========
Liabilities and shareholders' equity
Accounts payable $161,262 $215,626 $169,166
Accrued expenses 143,653 107,800 117,895
------- ------- -------
Total current liabilities 304,915 323,426 287,061
------- ------- -------
Non-current and contingent liabilities 203,577 140,759 142,834
Total shareholders' equity 923,423 904,924 1,028,133
------- ------- ---------
Total liabilities and shareholders' equity $1,431,915 $1,369,109 $1,458,028
========== ========== ==========
DSW INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Thirteen weeks ended Thirty-nine weeks ended
October 29, 2016 October 31, 2015 October 29, 2016 October 31, 2015
---------------- ---------------- ---------------- ----------------
Net sales $696,616 $665,520 $2,036,827 $1,948,212
Cost of sales (484,836) (466,554) (1,433,829) (1,344,886)
-------- -------- ---------- ----------
Gross profit 211,780 198,966 602,998 603,326
Operating expenses (147,412) (135,637) (446,696) (406,844)
Change in fair value of contingent (1,469) - (5,080) -
consideration
Operating profit 62,899 63,329 151,222 196,482
Interest income, net 482 952 1,626 2,624
Non-operating income (expense) 80 (107) 344 3,198
--- ---- --- -----
Income before income taxes and income 63,461 64,174 153,192 202,304
(loss) from Town Shoes
Income tax provision (25,626) (25,575) (60,420) (77,157)
Income (loss) from Town Shoes 1,128 696 1,237 (876)
----- --- ----- ----
Net income $38,963 $39,295 $94,009 $124,271
======= ======= ======= ========
Diluted shares used in per share calculations 82,537 88,369 82,643 89,229
Earnings per share $0.47 $0.44 $1.14 $1.39
DSW INC.
RECONCILIATION OF ADJUSTED RESULTS
(In thousands, except per share amounts)
(Unaudited)
Thirteen weeks ended October 29, 2016 Thirty-nine weeks ended October 29, 2016
Pre-tax Tax effected Diluted Pre-tax Tax effected Diluted
earnings earnings
- net income per share - net income per share
---------
Reported net income $38,963 $0.47 $94,009 $1.14
Adjustments:
Inventory step-up $532 332 (1) 0.00 $1,225 764 (1) 0.01
Transaction costs 4 2 (2) 0.00 2,288 1,416 (2) 0.02
Amortization of intangible 1,072 709 (1) 0.01 2,902 1,810 (1) 0.02
assets
Restructuring fees 1,349 833 (4) 0.01 4,075 2,522 (4) 0.03
Change in fair value of 1,469 883 (3) 0.01 5,080 3,054 (3) 0.04
contingent consideration
Adjusted net income $41,722 $0.51 $103,575 $1.26
======= ===== ======== =====
Note: Quarter-to-date diluted EPS does not foot to total due to immaterial rounding.
(1) The amounts include purchase accounting adjustments related to the step-up of the value of Ebuys' inventory
(which is recorded in gross profit) and $41.1 million for other intangible assets, which includes non-compete agreements, business
relationships, and tradenames (for which amortization is recorded within operating expenses).
(2) Relates to costs associated with the acquisition of Ebuys, which are recorded within operating expenses.
(3) The Company agreed to pay additional amounts to Ebuys contingent upon achievement of certain negotiated goals. The
Company has recognized a liability for these contingent obligations based on their estimated fair value at the date of acquisition
with any differences between the acquisition-date fair value and the ultimate settlement of the obligations being recognized as
an adjustment to income from operations.
(4) Relates to the Company's expense management initiative in 2016, which are recorded within operating expenses.
Non-GAAP Measures
In addition to earnings per share and net income determined in accordance with generally accepted accounting principles ("GAAP"), for purposes of evaluating operating performance, the Company uses adjusted measurements, which adjust for the effects of acquisition accounting adjustments and costs incurred in connection with the Ebuys acquisition, as well as restructuring costs related to the Company's expense management initiative. The unaudited reconciliation of adjusted results should not be construed as an alternative to the reported results determined in accordance with GAAP. These financial measures are not based on any standardized methodology and are not necessarily comparable to similar measures presented by other companies. The Company believes that this non-GAAP information is useful as an additional means for investors to evaluate the Company's operating performance, when reviewed in conjunction with the Company's GAAP statements. These amounts are not determined in accordance with GAAP and therefore should not be used exclusively in evaluating the Company's business and operations.
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SOURCE DSW Inc.
