Weather Rains on DSW’s Parade

Maybe it really is the weather.
Analysts said unpredictable weather patterns are wreaking havoc on DSW Inc.’s earnings, as the firm’s fundamentals remain unchanged.
“There’s nothing wrong with the product. Management commentary that traffic is down sharply but conversions are up means products remain trend right,” said Steve Marotta, analyst at CL King & Associates. “I’d say it’s wholly related to weather.”
Sterne Agee analyst Sam Poser agreed: “As the weather improves, so will sales. Second-quarter comparisons are fairly easy.”

For his part, Mike MacDonald, DSW president and CEO, said other macro factors could dampen sales.
“It just seems like the Mid-Atlantic — and particularly the communities around Washington, D.C. — may be a little more cautious right now than other areas. They’ve got the weather factor, but they may also be concerned about what impact the sequester is going to have on their job prospects,” he told analysts on a conference call.
MacDonald also added that the firm is up against some of the strongest comparable-store sales of the entire spring season last year. “To the extent our comps are relatively stable, I guess you could draw from that that there’s maybe an underlying improvement,” he said.
DSW said it is difficult to project full-year sales and profit performance with confidence, but is assuming flat comp-store sales in the first half of the year, and expects full-year earnings per share to come in between $3.30 and $3.40.
Bright spots at the firm still include momentum in men’s.
“[Men are] buying a lot of fashion. Our traditional business is stable. Our classic business is stable and the upside is really in contemporary boots and fashion,” said Debbie Ferrée, vice chairman and chief merchant of DSW. “And [he] is responding very, very well to the new contemporary fashion product we have on the floor. I don’t see that stopping and I think we’re just at the tip of the iceberg there.”
DSW also is hoping Luxe810, the luxury retail concept it is testing, will become a larger and more permanent portion of its assortment, since it has the potential to be a profitable and higher-margin addition to the business.
“It was a coup for DSW to obtain access to this very special offering of luxury footwear and accessories, [and] the results, so far, have been in line with our expectations,” said MacDonald.

For the period ended Feb. 2 and adjusted for one-time charges, the Columbus, Ohio-based retailer earned a net income of $31.4 million, or 69 cents, compared with $23.1 million, or 51 cents, a year earlier.

Including a net loss of 10 cents a share from legacy charges from the merger with Retail Ventures Inc., however, EPS came in at 59 cents.

Revenue advanced 15.7 percent to $594.3 million, from $513.7 million. Comps increased 3.6 percent.

But analysts were looking for EPS of 72 cents on revenue of $601.9 million, as polled by Yahoo Finance, and DSW’s shares closed 6.2 percent lower at $62.90 on Tuesday.

For the full year, adjusted net income was $152.2 million, or $3.35 a share, compared with $136.1 million, or $3, from the previous year. Annual revenue totaled $2.26 billion, an 11.5 percent year-over-year increase from $2.02 billion.

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