DSW Misses Q2 Comp & Revenue Expectations

Market watchers may have set the bar a little too high for DSW Inc.’s second quarter — the firm fell below forecasts for revenues and comparative store sales.

The Columbus, Ohio-based footwear-and-accessories retailer’s stock took a dive on the heels of the earnings release, shedding 9.43 percent at press time.

Revenues, though less than Wall Street’s bet, showed a 7 percent year-over-year improvement. Comparable-store sales gained 1.8 percent but were significantly below Wall Street’s forecasts of 3.4 percent to 3.5 percent improvement.

DSW CEO and President Mike MacDonald said “the big news” for the quarter was that there was a significant year-over-year shift in the firm’s mix of regular-price and clearance-price selling.

“As we expected, the mix shifted strongly in favor of regular-price selling,” MacDonald said during the company’s Q2 conference call. “For the quarter, regular-price comp sales increased by mid-single digits, while clearance comps declined by mid-single digits.”

In sales performance by category, MacDonald said athletic posted the strongest comps, driven by strong selling across fashion and performance and across both genders.

“For the second quarter, our athletic category represented 16 percent of our total business — the highest penetration level we’ve ever achieved,” MacDonald added. “We continue to create opportunities to capture demand from strong athletic momentum.”

Athletic was also a strong driver during the firm’s first quarter.

Net Income: Net income for the second quarter, ending Aug. 2, 2015, increased by 10.7 percent, to $37.6 million, from the comparable quarter, when net income totaled $34.3 million.

EPS: Earnings per diluted share improved 13.5 percent, to 42 cents per share, compared with last year’s 37 cents per share.

Net Revenue: Revenues increased 6.8 percent, to $627 million, compared with last year’s sales of $587 million.

Hit, Miss or Beat: DSW missed Wall Street’s estimates for revenues and was in line with EPS estimates. Analysts polled by Yahoo Finance had predicted revenues of $636.7 million.

Executive Insights: “Spring 2015 saw the launch of a refreshed brand image for DSW, which featured real shoe lovers and introduced DSW to a broader and more diverse customer base. We have received a strong favorable response to our campaign and will build on this momentum in the fall season. Over time, we expect this more inclusive and authentic approach to create greater brand awareness, acquire new customers, and increase DSW’s share of wallet.”
— MacDonald, during Q2 conference call

MacDonald on Omnichannel: “Digital marketing specifically drove sales benefits, as we used advanced analytics to deliver targeted messages throughout the customer journey. Wins from on-site search technology, e-mail strategy, and digital media targeting all drove increased customer engagement and incremental sales. We are excited to launch Buy Online, Pick-up In Store and Buy Online, Ship To Store this quarter, which will enable expedited in-store pickup for online purchases.”

Looking Ahead: The firm reiterated its full-year outlook for EPS, in the range of $1.80 to $1.90 per share.

Analyst Insights: “We expect the stock to be neutral to slightly weaker on today’s weak comp report. Management, on today’s release, highlighted continued omnichannel improvements and a ‘significant shift’ toward regular-priced selling in the quarter, which drove stronger merchandise margins, yet comps were still disappointing … ”
— Kate McShane, Citi Research analyst

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