DSW Earnings Beat, Fall Year Over Year - Analyst Blog

DSW Inc. DSW posted fourth-quarter fiscal 2013 adjusted earnings of 31 cents per share that beat the Zacks Consensus Estimate by a couple of cents but slumped 8.8% from the year-ago period. Including results of luxury test and other charges, DSW posted earnings of 30 cents a share, in line with the prior-year period.

Top line for the quarter was also disappointing as it slipped 3.7% to $572.3 million, with comparable store sales (comps) remaining flat year over year, compared to a 3.6% rise last year. Sales also fell short of the Zacks Consensus Estimate of $586 million.

Gross profit declined 6.8% to roughly $160 million with the gross margin contracting 90 basis points (bps) to 28%. Operating profit also inched down 1.8% to $44.8 million with the operating margin expanding marginally by 10 bps to 7.8%.

Fiscal 2013

The company posted fiscal 2013 adjusted earnings of $1.88 per share, up 12.6% year over year and beating the Zacks Consensus Estimate of $1.86 per share. The company recorded a double-digit rise for the fifth year in a row.  Taking one-time items, DSW's earnings came in at $1.65 per share, 1.9% above the prior-year quarter.

Net sales for the year jumped 4.9% to $2,368.7 million, with full year comps marginally increasing by 0.2%, compared to a 5.5% rise last year. Sales came almost in line with the Zacks Consensus Estimate.

During the year, the company benefitted from its effective management of inventories, which in turn facilitated full-year merchandise margin to widen by 45.1%, just 10 bps short of the company's 2011 record margin. Also, the company's selling, general and administrative (SG&A) expenses rate improved by 80 bps to 20.4%, which pushed up the operating margin to its highest level of 11.7%.

Balance Sheet

DSW ended the year with cash, short and long-term investments of $579.3 million, as against $409.9 million last year. Inventories, on a cost per square foot basis escalated by 1.2% at the end of 2013. The company's total shareholders' equity stood at $998.5 million, compared to $858.6 million last year.

Outlook

Going forward, for fiscal 2014, the company envisions 6–7% growth in revenue, with comps advancing at a low single digit rate. Also, after incorporating costs related to omni-channel operations, DSW anticipates earnings for the full year to lie in the band of $1.80 – $1.95 per share. The Zacks Consensus Estimate for the full-year earnings currently stands at $2.10 per share, which may witness a downward revision in the coming days.

The company's omni-channel operations are likely to augment earnings from 2015. Further, the company expects to introduce 35 new outlets in fiscal 2014.

Dividend

Management hiked its quarterly dividend by 50% to 18.75 cents per share. This dividend will be payable on Apr 15, 2014, to stockholders of record as on Apr 4, 2014. This raised dividend reflects the trust laid by management on the company's future growth.

Other Stocks to Consider

This branded footwear retailer currently holds a Zacks Rank #3 (Hold). Other better-ranked stocks in the related sector include Foot Locker Inc. FL, American Apparel, Inc. APP and Columbia Sportswear Co. COLM, all sporting a Zacks Rank #2 (Buy).