DSW Beats Analyst Forecasts, Outlook Cautious

DSW Inc. offset sluggish sales in the fourth quarter through cost-cutting efforts, but issued a conservative earnings outlook for the full year due to soft sales in its women’s shoe business and the shaky retail outlook.

The Columbus, Ohio-based 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.

Sales declined 3.7 percent to $572 million for the 13-week period ended Feb. 1, compared with last year’s fourth-quarter sales of $594 million. The result missed analysts’ consensus estimate of $590.2 million.

For the full year, adjusted earnings were $172.8 million, or $1.88 a diluted share, up from $1.67 a year ago. Sales for the same period increased 4.9 percent to $2.4 billion.

“DSW’s fourth-quarter performance was a microcosm of our full-year results. Comparable sales results were flat,” Mike MacDonald, DSW’s president and CEO, said on a conference call with investors and analysts.

“Strong sales increases in men’s footwear and accessories were offset by sales declines in women’s footwear. The southern and western regions of the country produced comparable sales increases, while the Northeast, Mid-Atlantic and Midwest experienced small comparable sales decreases,” MacDonald added.

Due to confidence in the future success of the DSW business model, MacDonald said the company’s board of directors approved a 50 percent increase in the firm’s quarterly dividend to 18.75 cents a share.

MacDonald said in a statement, “We marked our fifth consecutive year of double-digit earnings growth in 2013. … Effective inventory management and our new systems enabled us to expand full-year merchandise margin to 45.1 percent, which is just 10 basis points shy of our record margin in 2011.”

Due to the challenging retail outlook, MacDonald said the firm expects to deliver neutral earnings growth in 2014. DSW provided 2014 EPS guidance of $1.80 to $1.95 a diluted share, below current analyst expectations of $2.09 a diluted share.

For the full year, the company predicted revenue growth of between 6 percent and 7 percent, with comp-store sales growth in the low-single-digit range.

On the outlook for spring, MacDonald said on the call, “There’s pent-up demand that we’re going to start to see once the weather does turn.” He added that the company’s sandal business should benefit from the shift to warmer weather.

MacDonald noted DSW is working hard to improve its women’s offering this year. “Our women’s team is introducing freshness in new brands, while sourcing sharper deals. We’re enhancing our assortment with compelling bargains in both regular price and clearance [shoes].”

Additionally, DSW said it plans to open approximately 35 new stores in fiscal 2014.

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