DSW’s Q3 Earnings: Hurricanes Strike Again

DSW in Saudi Arabia
A Designer Shoe Warehouse store.

DSW Inc.’s share price declined nearly 13 percent on Tuesday morning from the previous market close after the firm posted third-quarter earnings that missed the mark.

The off-price footwear retailer said today its third-quarter sales increased 1.7 percent, to $708.3 million; thus the company missed consensus bets for sales of $710 million. Comparable-store sales slipped 0.4 percent — evidencing a negative 50- to 60-basis-point impact from the three hurricanes that hit Texas, Florida and Puerto Rico during the period.

Profits tumbled 90 percent year over year to $4 million, or 5 cents per diluted share. On an adjusted basis, profits were $35.9 million, or 45 cents per diluted share, significantly short of Wall Street analysts’ forecasts for diluted earnings per share of 53 cents.

Despite the impact of the severe hurricane season, CEO Roger Rawlins said much of the firm’s core business performed in line with management’s expectations during the quarter.

“Cold-weather-related product struggled to gain the traction we had anticipated; however, tight inventory management protected our bottom line from excessive markdowns and we ended the quarter with inventories below last year,” Rawlins said. “Our business model remains healthy, generating strong cash flow which allows us to invest in both organic and non-organic growth.”

Rawlins pointed to several key strategic priorities that DSW has managed to make progress on, including introducing new store concepts, the expansion of DSW kids market and the revamp of its Rewards VIP loyalty program.

Still the company adjusted its full-year outlook downward, reflecting the impact of weather and its waning expectations for the Ebuys business it acquired last year.

“At Ebuys, we’ve moderated the long-term financial expectations and have reduced its carrying value on our balance sheet,” Rawlins said. “However, we believe the business provides valuable expertise to manage end-of-season clearance through online marketplaces. The successful integration of this business will unlock future synergies across our brand portfolio.”

DSW now expects its adjusted diluted earnings per share to be in the range of $1.40 to $1.45 — compared with its previous forecasts for diluted earnings per share in the $1.45 to $1.55 range.