DSW’s Share Price Rises On Improved Comps, Street Beat

DSW Inc.’s share price has climbed more than 4 percent today following the company’s better than anticipated first quarter results. The Columbus, Ohio-based footwear-and-accessories retailer saw its comparable sales turn positive (up 5 percent) this quarter compared to the prior year’s decrease of 3.7 percent. The company noted that the momentum in athletic footwear proved to be a strong sales driver in Q1.

Net Income: The company’s net income, for the quarter ended May 2, 2015, rose 23 percent year-over-year to $47.4 million, compared to last year’s same quarter earnings of $38.6 million.

EPS: Earnings per diluted share increase 26 percent to 53 cents, compared to last year’s Q1 EPS of 42 cents.

Net Revenue: Net revenues for the first quarter were up 9.4 percent to $655 million compared to the same year-ago quarter’s revenues of $599 million.

Hit, Miss or Beat: DSW’s performance beat market watchers’ estimates for revenues and EPS. Analysts polled by Yahoo Finance had predicted revenues of $653 million and EPS of 47 cents.

Executive Insights: ”Our first quarter performance was a solid start to the spring season. Athletic footwear provided the strongest sales increase, but all major categories posted solid growth. Healthy regular priced sales and lower clearance inventory than last year drove a significant improvement in our gross profit rate. The West Coast port congestion delayed some receipts, but we released pre-buy merchandise to mitigate the impact on sales.”

“We are making significant strides in expanding our customer’s access to the full breadth of our assortment throughout the chain. Following the successful roll out of our ship-from-store program last year, we are piloting new technology to provide in-store customers access to additional styles, colors and sizes…” —Mike MacDonald, DSW’s CEO, in a release.

Looking Ahead: DSW reiterated its earnings outlook, for the year ending January 30, 2016, to range from $1.80 to $1.90 per share.  Total revenues are expected to increase in the 7 percent to 8 percent range, driven by low to mid single digit comparable sales growth and the opening of 35 to 40 new stores. This EPS range assumes 3 cents to 4 cents per share contribution from Town Shoes of Canada.

Analyst Insights: “We are, however, slightly dismayed at management’s reluctance to push through any of the material EPS beat to annual guidance. While accounting for normal and understandable management conservatism, the necessity to parse a material uptick in gross inventory levels of 22 percent leads us to believe gross margin may be under pressure in the near term.” –Steven Marotta, CL King & Associates analyst, in a May 27 note.

“The results are good enough to give the stock momentum, and guidance remains conservative.” –Sam Poser, Sterne Agee analyst, in a May 27 note.

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