Helped by leaner inventories, which drove gross margin improvement, the off-price retailer produced adjusted net income of $42 million, or 51 cents per diluted share, a 16 percent year-over-year improvement and 3 cents above consensus estimates.
DSW’s reported Q3 net income remained flat year-over-year at $39 million, but earning per share, at 47 cents, advanced 7 percent over the comparable period.
“Our third-quarter results demonstrate the progress [we’ve made] in [the] business after four consecutive quarters of decline,” said DSW CEO Roger Rawlins during the firm’s conference call. “In contrast to last year, we were able to manage inventories through cancellations and reorders, allowing us to enhance our merchandise margin. While there’s still plenty of opportunity for improvement, including returning to positive comps, this quarter’s results demonstrate the kind of success we can achieve.”
DSW’s revenues rose 4.7 percent, to $696.6 million, but missed estimates for revenues of $711.6 million. The firm’s newly acquired e-commerce site, Ebuys Inc., contributed $21 million to those revenues. Comps remained in the red, down 2 percent in the quarter.
“Freshness and consistency of our assortments resulted in better regular-price selling in women’s dress casual and a continued acceleration in our athletic business,” Rawlins said. “These improvements were offset by a late start in boots, which we partially anticipated.”
Looking ahead, DSW’s chief said he’s bullish that the firm’s actions to reduce clearance markdowns will help generate more profitable sales during the holiday season.
DSW raised its full-year outlook to $1.35 to $1.45 per share and said it has positioned its inventory so that it expects lower markdowns than the fourth quarter last year. Still, the company cautioned that it is positioning its sales plan with some flexibility while protecting its bottom line. As such, the updated outlook assumes a low to mid-single-digit comp decline for the fall season, a tax rate of approximately 39 percent and a lower share count of 82 million shares for the full year.