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DSW Inc. Reports Second Quarter 2018 Financial Results

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DSW Inc. Reports Second Quarter 2018 Financial Results

- Second quarter revenue increased 16.4% to $795 million; comparable sales increased 9.7%

- Second quarter Reported loss of $0.48 per diluted share, including charges of $1.11 per diluted share primarily related to its Canadian acquisition

- Second quarter Adjusted EPS of $0.63 per diluted share

- Raised 2018 guidance for Adjusted earnings for ongoing business to $1.60 to $1.75 per diluted share

- Consolidation of its go-forward Canadian business to be slightly accretive in 2018

- Announces the exit of the Town Shoes banner

- Board of Directors declared quarterly dividend of $0.25 per share

PR Newswire

COLUMBUS, Ohio, Aug. 28, 2018 /PRNewswire/ -- DSW Inc. (NYSE:DSW), a leading branded footwear and accessories retailer, announced financial results for the three months ended August 4, 2018, compared to the three months ended July 29, 2017.

Chief Executive Officer, Roger Rawlins stated, "We are thrilled to report record sales and earnings results this quarter as our merchandise strategy and marketing investment fueled strong customer engagement, traffic and transaction activity, resulting in a 10% comp. The strong results we've had this spring demonstrate we're successfully activating customers and increasing lifetime value. I'm proud of the progress we're making and with our updated earnings outlook, we look forward to sales reaching $3 billion for the first time in DSW's history."

"After completing our strategic assessment of the Canadian marketplace, we have decided to close its smallest retail banner and focus on the three largest family footwear banners which we believe have the most potential for future growth and profitability," Mr. Rawlins added.

Second Quarter Operating Results

  • Total revenue increased by 16.4% to $795 million, including $72.5 million from the consolidation of its Canadian retail business.
  • Comparable sales increased 9.7% for the same 13-week periods ended August 4, 2018 and August 5, 2017. Comparable sales exclude results from its Canada Retail segment.
  • Reported gross profit, as a percent of sales, increased by 280 bps, due to favorable merchandise margin and occupancy leverage.
  • Reported operating expenses, as a percent of sales, increased by 220 bps, driven by marketing investments, acquisition-related costs and restructuring expenses.

Six Months Operating Results

  • Total revenue increased 9.6% to $1.5 billion, including $72.5 million from the consolidation of its Canadian retail business.
  • Comparable sales increased 5.8% compared to last year's 1.3% decrease.
  • Reported gross profit, as a percent of sales, increased by 170 bps, driven by favorable merchandise margin and business mix.
  • Reported operating expenses, as a percent of sales, increased by 160 bps, due to marketing investments, lease exit costs, acquisition-related costs and restructuring expenses.
  • Reported net loss was $14.1 million, or $0.18 loss per diluted share, including pre-tax charges totaling $98.4 million, or $1.20 per diluted share, primarily related to the acquisition of the Canadian retail business and the exit of Ebuys.
  • Adjusted net income was $82.4 million, or $1.02 per diluted share, a 47% increase to last year. This includes a loss of $0.01 per diluted share from the operations of the Town Shoes banner, which will be mostly exited by the end of the fiscal year.

Integration of New Canada Retail Segment

  • As part of the two step acquisition, the Company completed the remeasurement of previously held assets, including the equity investment and note receivable from its initial investment in 2014, resulting in a non-cash charge of $34.0 million.
  • As a result of the current enterprise value exceeding the fair value of the acquired net assets, the Company recorded a goodwill impairment of $36.2 million.
  • Upon the completion of its comprehensive review, the Company will focus on its largest retail banners, Shoe Company, Shoe Warehouse and DSW Designer Shoe Warehouse. The Company will exit its full price, mall-based Town Shoes banner, which operates 38 locations, mostly by the end of the fiscal year.
  • The acquisition is expected to generate approximately $215 million in revenues and will be slightly accretive to Adjusted Earnings in 2018.

Second Quarter Balance Sheet Highlights

  • Cash and investments totaled $289 million compared to $271 million in the second quarter last year.
  • The Company ended the quarter with inventories of $597 million compared to $527 million last year. Excluding inventories from its Canadian acquisition, inventories per square foot increased by 12.0% and increased by 2.0% on a two-year basis.

Regular Dividend
DSW Inc.'s Board of Directors declared a quarterly cash dividend of $0.25 per share. The dividend will be paid on October 5, 2018 to shareholders of record at the close of business on September 24, 2018.

Fiscal 2018 Annual Outlook
The Company updated its full year outlook for adjusted earnings in the range of $1.60 to $1.75 per diluted share, compared to its previous range of $1.52 to $1.67 per diluted share. Guidance does not include charges related to exit costs, restructuring or acquisition-related expenses or operating losses from the Town Shoes banner, which will mostly close by the end of the fiscal year.

 


Current outlook


Previous outlook

Revenue outlook

Increase 6% to 9%


Decrease 1% to 3%

Revenues from Canadian acquisition

Approx. $215 million



Comparable sales growth

Low- to mid-single digit range


Low-single digit range

Tax rate

Approx. 27%


Approx. 29%

Shares outstanding

82 million


81 million

Adjusted EPS

$1.60 to $1.75/ share


$1.52 to $1.67/ share

 

Webcast and Conference Call
The Company is hosting a conference call today at 8:30 am Eastern Time. The conference will be broadcast live over the internet and can be accessed at http://dswinc.investorroom.com. For those unable to listen to the live broadcast, an archived version will be available at the same location until September 12, 2018. The teleconference will be available on replay and can be accessed by dialing 1-877-344-7529 and entering passcode 10123353.

About DSW Inc.
DSW Inc. is a leading footwear and accessories retailer that operates a portfolio of several value retail concepts under the DSW Designer Shoe Warehouse, Shoe Company, Shoe Warehouse and Town Shoes brands. DSW also supplies footwear at leased locations in the U.S. through its Affiliated Business Group and franchised international locations. Products are available across North America at close to 1,000 retail outlets and via e-commerce sites and a mobile app. More information can be found at www.dswinc.com.

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 2018 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 growing our store base and digital demand; risks related to our acquisition of Town Shoes Limited ("TSL"), including the possibility that the anticipated benefits of the acquisition are not realized when expected or at all; our ability to protect our reputation; maintaining strong relationships with our vendors; our ability to anticipate and respond to fashion trends, consumer preferences and changing customer expectations; risks related to the loss or disruption of our distribution and/or fulfillment operations; continuation of agreements with and our reliance on the financial condition of Stein Mart; our ability to execute our strategies; risks related to international franchisees failing to perform under their obligations and/or not operating the franchised stores according to our standards; fluctuation of our comparable sales and quarterly financial performance; risks related to the loss or disruption of our information systems and data; our ability to prevent or mitigate breaches of our information security and the compromise of sensitive and confidential data; failure to retain our key executives or attract qualified new personnel; our reliance on our loyalty program and marketing to drive traffic, sales and customer loyalty; risks related to leases of our properties; our competitiveness with respect to style, price, brand availability and customer service; our reliance on foreign sources for merchandise and risks inherent to international trade; uncertainty related to future legislation, regulatory reform, policy changes, or interpretive guidance on existing legislation, including the impact of the Tax Cuts and Jobs Act; uncertain general economic conditions; risks related to holdings of cash and investments and access to liquidity; and fluctuations in foreign currency exchange rates. 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.

SEGMENT RESULTS

(unaudited)


Net sales by segment and total revenue


Three months ended


Six months ended

(dollars in thousands)

August 4, 2018


July 29, 2017


% change


August 4, 2018


July 29, 2017


% change

Net sales:












U.S. Retail segment1

$

691,757



$

629,691



9.9

%


$

1,361,541



$

1,254,195



8.6

%

Canada Retail segment

72,532





%


72,532





%

Other

29,446



52,030



(43.4)

%


70,099



118,345



(40.8)

%

Total net sales

793,735



681,721



16.4

%


1,504,172



1,372,540



9.6

%

Franchise and other revenue

1,533



1,291



18.7

%


3,198



2,510



27.4

%

Total revenue

$

795,268



$

683,012



16.4

%


$

1,507,370



$

1,375,050



9.6

%

 

Comparable sales change


Three months ended


Six months ended


August 4, 2018


July 29, 2017


August 4, 2018


July 29, 2017

U.S. Retail segment1

9.6%


0.6%


5.7%


(1.3)%

Other - ABG

12.2%


(0.1)%


8.2%


(1.0)%

Total Company

9.7%


0.6%


5.8%


(1.3)%









1 U.S. Retail segment was previously presented as the DSW segment.

 

Stores data


August 4, 2018


July 29, 2017

Number of stores in the U.S.:




DSW

517


510

ABG

289


349


806


859

Number of stores in Canada:




The Shoe Company / Shoe Warehouse

113


DSW Designer Shoe Warehouse

27


Town Shoes

38



178


Total number of stores

984


859


 

Reported gross profit by segment1


Three months ended


Six months ended


August 4, 2018


July 29, 2017


August 4, 2018


July 29, 2017

U.S. Retail segment:








Merchandise margin

45.9 %


44.4 %


44.3 %


43.8 %

Store occupancy expenses

(10.6)


(11.4)


(10.6)


(11.2)

Distribution and fulfillment expenses

(2.1)


(2.1)


(2.3)


(2.2)

Gross profit

33.2


30.9 %


31.4


30.4

Canada Retail segment:








Merchandise margin

41.2



41.2


Store occupancy expenses

(14.9)



(14.9)


Distribution and fulfillment expenses

(1.2)



(1.2)


Gross profit

25.1



25.1


Other - gross profit

22.7


8.5


19.3


12.7

Total Company gross profit

32.1 %


29.2 %


30.6 %


28.9 %









1 Numbers are displayed as a percentage of net sales.

 

 

DSW INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited and in thousands)








August 4, 2018


February 3, 2018


July 29, 2017

Assets






Cash and cash equivalents

$

215,996



$

175,932



$

89,305


Investments

73,119



124,605



182,062


Accounts receivable

17,259



19,236



17,742


Inventories

596,956



501,903



527,305


Prepaid expenses and other current assets

73,763



49,197



45,529


Total current assets

977,093



870,873



861,943


Property and equipment, net

387,621



355,199



364,552


Goodwill

25,899



25,899



79,689


Deferred income taxes

14,235



27,711



18,792


Equity investment in TSL



6,096



10,350


Notes receivable from TSL



115,895



60,094


Intangible assets

20,285



135



33,065


Other assets

19,883



19,709



18,144


Total assets

$

1,445,016



$

1,421,517



$

1,446,629


Liabilities and shareholders' equity






Accounts payable

$

229,440



$

179,308



$

165,377


Accrued expenses

145,776



148,226



124,343


Total current liabilities

375,216



327,534



289,720


Non-current liabilities

150,316



138,732



178,955


Total shareholders' equity

919,484



955,251



977,954


Total liabilities and shareholders' equity

$

1,445,016



$

1,421,517



$

1,446,629



 

 

DSW INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share amounts)






Three months ended


Six months ended


August 4, 2018


July 29, 2017


August 4, 2018


July 29, 2017

Revenue:








Net sales

$

793,735



$

681,721



$

1,504,172



$

1,372,540


Franchise and other revenue

1,533



1,291



3,198



2,510


Total revenue

795,268



683,012



1,507,370



1,375,050


Cost of sales

(539,240)



(482,424)



(1,044,452)



(976,158)


Franchise costs

(293)





(573)




Operating expenses

(195,026)



(152,554)



(363,166)



(309,122)


Impairment charges

(36,240)





(36,240)




Change in fair value of contingent consideration 
     
liability



(1,168)





(2,252)


Operating profit

24,469



46,866



62,939



87,518


Interest income, net

805



661



1,469



1,222


Non-operating expenses, net

(47,349)



(679)



(49,486)



(2,183)


Income (loss) before income taxes and income 
     (loss) from equity investment

(22,075)



46,848



14,922



86,557


Income tax provision

(16,281)



(18,390)



(27,671)



(33,975)


Income (loss) from equity investment



219



(1,310)



(1,087)


Net income (loss)

$

(38,356)



$

28,677



$

(14,059)



$

51,495


Diluted earnings (loss) per share

$

(0.48)



$

0.36



$

(0.18)



$

0.64


Weighted average diluted shares

80,265



80,714



80,187



80,729


 

 

DSW INC.

NON-GAAP RECONCILIATION

(unaudited and in thousands, except per share amounts)






Three months ended


Six months ended


August 4, 2018


July 29, 2017


August 4, 2018


July 29, 2017

Reported net income (loss)

$

(38,356)



$

28,677



$

(14,059)



$

51,495


Pre-tax adjustments:








Included in operating expenses:








   Lease exit and other termination costs

409





4,403




   Acquisition-related costs and target
   acquisition costs

5,104





5,612




   Restructuring expenses

2,708



292



2,708



829


   Amortization of intangible assets

114



1,018



114



2,036


Impairment charges

36,240





36,240




Change in fair value of contingent
consideration liability



1,168





2,252


Included in non-operating expenses, net:








   Fair value adjustments of Town Shoes'
   previously held assets

33,988





33,988




   Foreign currency transaction losses

13,318



699



15,296



2,161


Total pre-tax adjustments

91,881



3,177



98,361



7,278


Tax effect of adjustments

(2,623)



(1,138)



(4,173)



(2,542)


Tax expense impact as a result of Ebuys
exit





2,265




Total adjustments, after tax

89,258



2,039



96,453



4,736


Adjusted net income

$

50,902



$

30,716



$

82,394



$

56,231


Reported diluted earnings (loss) per share

$

(0.48)



$

0.36



$

(0.18)



$

0.64


Adjusted diluted earnings per share

$

0.63



$

0.38



$

1.02



$

0.70


 


 

Non-GAAP Measures
In addition to earnings per share and net income determined in accordance with accounting principles generally accepted in the United States ("GAAP"), for purposes of evaluating operating performance, the Company uses adjusted earnings per share and net income, which adjust for the effects of the lease exit and other termination costs; costs and charges associated with acquisition-related activity, including target acquisition efforts; restructuring expenses; amortization expense of intangible assets; the change in fair value of contingent consideration liability related to Ebuys; and foreign currency losses, including the reclassification from accumulated other comprehensive loss as a result of the Town Shoes acquisition. 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.

Cision View original content:http://www.prnewswire.com/news-releases/dsw-inc-reports-second-quarter-2018-financial-results-300702927.html

SOURCE DSW Inc.

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