DSW Posts Major Street Beat In Q4

DSW
A DSW storefront.
Courtesy of DSW Inc.

It would be a rough quarter, they said.

And while unseasonable weather and a soft holiday certainly challenged DSW Inc. in Q4, contrary to pre-earnings chatter, the company pulled off a decent fourth quarter and significantly surpassed financial forecasts.

The off-price retailer said Tuesday that its Q4 profit declined more than 60 percent, to $11.8 million, or 14 cents per diluted share, compared with the comparable quarter’s profit of $30.8 million, or 35 cents per diluted share. While earnings slid significantly, the results were two times greater than Wall Street’s forecast for diluted earnings per share of 7 cents.

The firm’s sales climbed 5 percent in the fourth quarter, to $672 million, from $640.2 million in the comparable period. It was also a beat on estimates for a fairly flat quarter with sales of $641.2 million. Same-store sales also rose a modest 0.7 percent in Q4, another win against estimates for a comp decline between 2 percent and 3 percent.

While some market watchers were sidelined by what they deemed aggressive promotions on the part of DSW during a slow holiday season, newly appointed DSW CEO Roger Rawlins cited the company’s fast response to a tough retail environment as a significant factor in boosting top-line growth despite creating margin pressure.

During the fourth quarter, we acted quickly to drive sales and gain market share, in the face of a challenging retail environment. While these actions negatively impacted operating margin in the near term, we believe they were the right steps to expand our customer base and exit the year with a clean inventory position,” Rawlins said in a release. “In 2016, we will move decisively to improve our execution, intensify our focus on delivering value to our customers and drive additional growth by entering new categories, markets and digital channels. We recognize there is much more we need to accomplish and we are committed to returning DSW to sustainable and profitable growth while delivering strong shareholder returns.”

For the full year, sales increased 5 percent to $2.6 billion; comparable sales advanced 0.8 percent; and diluted EPS slid 8.9 percent to $1.54. DSW SVP and CFO Mary Meixelsperger said total inventory increased 1.5 percent on a cost per square foot basis (or 7.4 percent year-over-year).

Looking ahead to the full year ending Jan. 28, 2017, DSW expects revenue growth of 8 percent to 10 percent, with comparable sales growth in the 1 percent to 2 percent range. Full year adjusted diluted EPS is expected to range between $1.54 to $1.64, including 4 cents to 6 cents per share from the company’s recent Ebuys, Inc. acquisition.