The revitalization of DSW Inc.’s women’s business is key to the company meeting its guidance for the full year, according to analysts.
The retailer’s prospects largely hinge on the team’s ability to tweak the brand mix, styles and price points, according to Brean Capital analyst Danielle McCoy.
“The women’s business remains under pressure, and while management is taking the necessary steps to improve the division, they have had a lot of trouble with [the category], and that’s the biggest part of their business,” McCoy said.
Mike MacDonald, president and CEO of the Columbus, Ohio-based firm, said on a conference call with investors and analysts that the company is focused on improving the segment this year. “Our women’s team is introducing freshness, while [negotiating] sharper deals. We’re enhancing our assortment with compelling bargains in both regular price and clearance.”
Amid challenging retail headwinds, DSW expects to deliver neutral earnings growth in 2014. The company delivered 2014 earnings per share guidance of $1.80 to $1.95 a diluted share, below analysts’ predictions of $2.09.
For the full year, the company forecast revenue increases of between 6 percent and 7 percent, with comparable-store sales growth in the low single digits.
On the lower-than-expected guidance, McCoy said she views it as aggressive given the lack of visibility in the U.S. retail sector in the first half.
“The turnaround of the [women’s] division will take some time. The low-single-digit guidance assumes the women’s business turns in the second half, an assumption which is premature.”
Additionally, McCoy warned that increased investments in DSW’s omnichannel initiatives and higher pre-store opening expenses, combined with a lower sales base, will put pressure on the company’s operating margins this year.
“DSW’s top- and bottom-line guidance was completely missed. On the top line, they expected maybe a quicker turn with the women’s business, and on the bottom line — which was a shock to many — there was the [announcement of planned] expenses for its omnichannel initiatives, which are necessary but tend to be pricey.” (The firm intends to spend roughly $10 million on its omnichannel infrastructure this year.)
Market watchers agreed that 2014 will be an investment year for DSW in terms of repairing its core business and enhancing its operating platform.
Sam Poser, an analyst at Sterne Agee, said the pent-up demand once the weather warms is unlikely to offset missed sales throughout the unseasonably cold winter. In addition to that, a lack of must-have items is plaguing the retailer, he said.
“There are no strong fashion trends in the women’s business. DSW is betting that things are going to get better, but the outlook for the second half of 2014 is unclear, especially as DSW laps a strong boot/bootie season,” he said in a research note.
The company reported adjusted net income of $28.7 million, or 31 cents a diluted share, ahead of analyst expectations for 29 cents, but down from 34 cents in the same period a year earlier.