Macro Pressures Lead DSW To ‘Disappointing’ Q3

DSW
A DSW storefront.
Courtesy of DSW Inc.

DSW Inc.’s share price has been in the red most of the day, after unseasonably warm weather, tepid consumer spending and slower tourism led to profit declines and an overall “disappointing” third quarter.

DSW President and CEO Mike MacDonald — who announced his retirement earlier this month — said although weak sales and a difficult retail environment weighed on the firm, he remains upbeat that its omnichannel initiatives and effective inventory management would yield progress.

“One exciting new capability we implemented this quarter is Buy Online Pick-up in Store and Buy Online Ship to Store,” MacDonald said during the conference call. “We rolled these capabilities out to all stores in the third quarter, and, with virtually no proactive marketing, this new program accounted for 1 percent of total sales in October.”

With profit down 21 percent and revenues declining nearly 1 percent in the quarter, the CEO said he remains cautious about the fourth quarter and expects a highly promotional holiday.

Comparable sales decreased 3.9 percent in Q3 compared to last year’s increase of 2.6 percent. The retailer closed the quarter with inventory up 1.8 percent year-over-year. (Excluding opportunistic buys, inventories decreased by 0.7 percent).

“We are intensifying our merchandising and marketing efforts to capture market share and drive traffic, while rigorously managing our expenses,” MacDonald said.

Net Income: Net income for the third quarter ending Oct. 31, 2015, decreased 20.7 percent to $39.3 million from $49.6 million in the comparable quarter.

EPS: Earnings per diluted share declined to 44 cents from 55 cents in the comparable quarter.

Net Revenue: Revenue slid 0.6 percent to $665.5 million from $669.9 million in the same period last year.

Hit, Miss or Beat: DSW’s results were mixed. Market watchers polled by Yahoo Finance predicted revenue of $668.5 million and EPS of 43 cents.

Executive Insights: “Right now, we are very focused on driving the top-line. In the long term, we remain confident [that] we have the right plan in place and that we are well positioned to meet the shifting needs of our customers. An important part of that plan is our phenomenal omnichannel strategy, the goal of which is to make our entire assortment available to our customers in a seamless fashion, regardless of how and where they choose to shop.” — MacDonald during Q3 conference call

Looking Ahead: DSW reiterated its full-year guidance.

Analyst Insights: “While FY15 guidance was reiterated on the heels of the recently reduced [guidance], our channel checks reveal that November to date has remained challenged. Given the current struggles with comp and margin results, we remain on the sidelines at this time.” — Steven Marotta, C.L. King & Associates analyst

“Inventories increased 1.8 percent. This reflects the moves DSW made during the quarter to actively manage inventory.” — Kate McShane, Citi Research analyst