DSW CFO to Depart, Q4 Sales Soft

DSW Inc. announced the retirement of CFO Douglas Probst as it updated its earnings expectations for the full year following sluggish sales for the 13-week period ended Feb. 1.

DSW tapered its full-year earnings per share guidance to between $1.85 and $1.87 a share from the company’s previous guidance of between $1.80 and $1.90.

The company posted sales of $571 million in the fourth quarter, versus $594 in the prior corresponding period, missing analysts’ consensus forecasts by approximately $18 million. Despite softer sales for the quarter, shares of DSW were 2.8 percent higher at $38.95 in midday trading as market watchers said better cost control would likely mitigate the impact on EPS for the full year.

“We suspect gross margins contracted during the quarter by 160 basis points given the stepped-up promotions needed to spur traffic [and] the lack of occupancy leverage,” said Canaccord Genuity analyst Camilo Lyon.

“But a reduction in selling, general and administrative expenses likely helped to mitigate the EPS drag,” he added in a note to clients. As a result, Lyon lifted his fourth-quarter EPS forecast to 28 cents a share, from 25 cents. 

Analysts attributed the weaker quarter to the harsh winter and slower foot traffic in stores, largely due to the high level of promotional activity in department stores.

Persistent cold weather in the Midwest and Northeast — which accounts for about 45 percent of the company’s customer base — is also weighing on sales, analysts said.

Sam Poser, an analyst at Sterne Agee, said that while DSW’s business remains fundamentally sound, its women’s business is dragging on earnings due to the lack of fashion trends in the market this season.

“For a lot of these non-athletic companies, or those who don’t produce shoes that keep feet warm and dry, I think is tough out there. We will get a better idea at Platform in [Las] Vegas and also when they announce earnings in mid-March.”

On the updated guidance, Poser said, “Sales were a little better than expected, but we will have to see how the gross margins end up when they report earnings.”

For the period ended Feb. 1, DSW said its comparable sales were flat compared with a 3.6 percent increase in the same period a year ago.

“Given the weak retail environment, we were satisfied with our financial performance,” CEO Mike MacDonald said in a statement. “The updated earnings guidance means that DSW will post its fifth consecutive year of double-digit EPS growth.”

Probst will officially step down on May 1 after nine years of service with the company. On a conference call with investors, MacDonald said DSW is currently reviewing candidates internally and externally in search of a replacement.

The CFO stated, “It has been a privilege to work with an extraordinary team at DSW because of its unique culture and a strong set of shared values. I plan to take some time to pursue my philanthropic interests while continuing my entrepreneurial journey. I am confident that DSW will continue its success and wish the team all the best.” 

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