DSW Delivers, Plans Bright Back Half

DSW Inc. is riding high.  

Last week, the Columbus, Ohio-based footwear retailer reported second-quarter earnings that surpassed Wall Street expectations.

“Despite the headwinds out there, they did a great job and so far their indications for the third quarter are positive,” said Christopher Svezia, an analyst with Susquehanna Financial Group. “You get the sense there is opportunity in the back half of the year.”

Market watchers credited the successful quarter to a series of new system controls and a shift to more casual footwear assortment. “They’re trying to get smarter about the timing of demand as it relates to the categories,” added Camilo Lyon, an analyst at Canaccord Genuity, citing the retailer’s move to invest more heavily in booties for fall.

“The question is, do they skew too much too early with booties and leave sales on the table in the third quarter? Only time will tell. But it does show a deeper way of viewing the timing of inventory deliveries,” he said.  

For the quarter ended Aug. 3, net income rose to $33.7 million, or 73 cents a diluted share, up from $29.3 million, or 65 cents, in the same period last year.  

Excluding items such as the firm’s luxury test concept and charges related to its acquisition of one-time majority shareholder Retail Ventures Inc., DSW said earnings per share were 97 cents, compared with 66 cents in the year-ago period. The company also announced a 9.7 percent increase in second-quarter revenues, to $562.1 million, compared with the same period in 2012.

“We managed merchandise receipts down early in the season and up later in the season. We adjusted our customer communications to reflect a strong emphasis on value and we kept a lid on expenses,” DSW CEO Michael MacDonald said last week during a conference call with investors and analysts. “This agility allowed us to escape the first quarter with flattish earnings and then post a really strong 47 percent EPS improvement in the second quarter.”

Among the new initiatives distinguishing the business is size optimization, which sends sizes to each store according to which are most popular, in an effort to prevent an imbalance in the inventory.

“That is the enticing part of the story, about how these systems initiatives will continue to generate the returns they’re hoping for,” said Lyon.  

DSW also is focused on expanding a program that better links stores’ ability to fulfill online orders when items run out in warehouses.  

As previously announced, the company raised its full-year guidance to $3.60 to $3.80 a share, from an earlier forecast of $3.40 to $3.60.

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