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DSW Inc. Reports First Quarter 2016 Financial Results
- First quarter sales increase 3.9% to $681 million; comparable sales decrease 1.6%
- Reported EPS of $0.36 per share, including purchase accounting, transaction costs and change in fair value of contingent consideration associated with the acquisition of Ebuys, Inc. ("Ebuys")
- Adjusted EPS of $0.40 per share
- Full year Adjusted EPS guidance of $1.32 to $1.42 per share
- Board of Directors approves a quarterly dividend of $0.20 per share

COLUMBUS, Ohio, May 24, 2016 /PRNewswire/ -- DSW Inc. (NYSE: DSW), a leading branded footwear and accessories retailer, announced financial results for the thirteen week period ended April 30, 2016, which compares to the thirteen week period ended May 2, 2015.

Roger Rawlins, Chief Executive Officer stated, "We have reduced our sales and earnings guidance to reflect the current trend of our business in a challenging retail environment.  This is the prudent action to take so that inventory, expenses and capital investments are aligned to maximize profitability and positioned to expand earnings as our trend improves."

Mr. Rawlins also stated, "Over the past three years, we have invested heavily in technology, stores, marketing and support services.  These investments have driven sales, but we haven't grown our bottom line.  We have begun an assessment of our cost structure to improve earnings and reinforce our competitive position in a rapidly changing environment."

First Quarter Operating Results

  • Reported net income was $30.0 million, or $0.36 per diluted share, including pre-tax charges of $4.5 million or $0.04 per share from purchase accounting, transaction costs and fair market value accounting charges resulting from the acquisition of Ebuys.
  • Adjusted net income was $32.8 million, or $0.40 per diluted share, excluding acquisition related costs.
  • Sales increased 3.9% to $681 million, including $15.1 million from Ebuys.
  • Comparable sales decreased by 1.6% compared to last year's increase of 5.1%.
  • Adjusted gross profit decreased by 250 bps due to higher markdowns and the addition of Ebuys.
  • Adjusted operating expense rate deleveraged by 90 bps due to increased marketing spend, technology investments and higher corporate expenses.
  • Non-operating income last year included a foreign exchange benefit of $3.3 million or $0.02 per share related to the Company's Canadian dollar holdings.
  • Tax rate increased by 80 bps due primarily to a favorable discrete item last year.

First Quarter Balance Sheet Highlights

  • Cash, short-term and long-term investments totaled $238 million compared to $456 million in the first quarter last year. The lower cash balance reflects the Company's share repurchase activity totaling $180 million in 2015 and funding of its acquisition of Ebuys totaling $60.4 million in March 2016.
  • Inventories were $563 million compared to $512 million at the end of the first quarter last year. Excluding Ebuys inventory of $27 million, total inventories increased by 4.7%. On a cost per square foot basis, DSW inventories increased by 0.6%.

Regular Dividend
DSW Inc.'s Board of Directors declared a quarterly cash dividend payment of $0.20 per share. The dividend will be paid on June 30, 2016 to shareholders of record at the close of business on June 16, 2016.

Fiscal 2016 Annual Outlook
The Company revised its full year earnings guidance to $1.32 to $1.42 per share, reflecting expectations for softer sales for the balance of the year in a challenging retail environment. Guidance does not include the impact of purchase price accounting, transaction costs and fair market value accounting for Ebuys contingent consideration of approximately $0.11 to $0.13 per share. This assumes approximately 6% revenue growth driven by a comparable sales decline in the 1% to 2% range.

The table below compares changes to the Company's updated guidance. Adjusted EPS excludes transaction costs, purchase accounting and fair market value accounting related to Ebuys.



Previous Guidance


Updated Guidance

Comparable sales


1% - 2% growth


1% - 2% decline

Revenue growth


8% - 10%


6% - 7%

Gross margin


flattish


decline 100 to 150 bps

Operating expense growth


low teens


7% - 8%

Tax rate


 approx. 39%


approx. 39%

Shares outstanding


83 million shares


83 million shares

Adjusted Earnings per share


$1.54 to $1.64/share


$1.32 to $1.42/share

Webcast and Conference Call
To hear the Company's live earnings conference call, log on to http://www.dswinc.com/ today at 8:30 a.m. Eastern Time, or call 1-888-317-6003 in the U.S. or 1-412-317-6061 outside the U.S. using passcode 0013011 approximately ten minutes prior to the start of the call. A telephone replay of this call will be available until 5:00 p.m. Eastern Time on June 1, 2016 and can be accessed by dialing 1-877-344-7529 in the U.S. or 1-412-317-0088 outside the U.S. and using passcode 10086079. An audio replay of the conference call, as well as additional financial information, will also be available at http://www.dswinc.com.

About DSW Inc.
DSW Inc. is a leading branded footwear and accessories retailer that offers a wide selection of brand name and designer dress, casual and athletic footwear and accessories for women, men and kids. As of May 24, 2016, DSW operates 480 stores in 42 states, the District of Columbia and Puerto Rico, and operates an e-commerce site, http://www.dsw.com, and a mobile website, http://m.dsw.com. DSW Inc. also supplies footwear to 385 leased locations in the United States under the Affiliated Business Group. DSW Inc. also owns Ebuys, a leading off price footwear and accessories retailer operating in digital marketplaces in North America, Europe, Australia and Asia. For store locations and additional information about DSW Inc., visit http://www.dswinc.com. Follow DSW on Twitter at http://twitter.com/DSWShoeLovers and Facebook at http://www.facebook.com/DSW.

 

DSW INC.

Q1 2016 SEGMENT RESULTS


Net sales by segment


Thirteen weeks ended


April 30, 2016


May 2, 2015


% change


(in thousands)









DSW segment



$

623,032


$

612,211


1.8%

ABG segment



43,139


43,275


(0.3)%

Other



15,096



—%

DSW Inc.



$

681,267


$

655,486


3.9%



Comparable sales change by reportable segment


Thirteen weeks ended


April 30, 2016


May 2, 2015

DSW segment






(1.4)%


5.1%

ABG segment






(3.4)%


5.0%

DSW Inc.






(1.6)%


5.1%


Gross profit by segment


Thirteen weeks ended


April 30, 2016


May 2, 2015

DSW segment






30.7%


33.3%

ABG segment






25.1%


20.8%

Other






14.1%


—%

DSW Inc.






30.0%


32.5%


Stores and square footage data


As of


April 30, 2016


May 2, 2015

DSW stores open, end of period






478


449

DSW stores total square footage (in thousands)






9,955


9,550


Gross profit by segment


Thirteen weeks ended


April 30, 2016


May 2, 2015

DSW segment gross profit



30.7%




33.3%

DSW segment merchandise margin

43.9%




45.8%



Store occupancy expense

10.9%




10.4%



Distribution and fulfillment expense

2.3%




2.1%











ABG segment gross profit



25.1%




20.8%

ABG segment merchandise margin

46.6%




46.1%



Store occupancy expense

20.4%




24.2%



Distribution and fulfillment expense

1.1%




1.1%











Other gross profit



14.1%




—%

Other merchandise margin

34.6%




—%



Marketplace fees

11.0%




—%



Distribution and fulfillment expense

9.5%




—%



 

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

Any statements in this release that are not historical facts, including the statements made in our "Fiscal 2016 Annual Outlook," are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on the Company's current expectations and involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These factors include, but are not limited to: our success in opening and operating new stores on a timely and profitable basis; maintaining strong relationships with our vendors; our ability to anticipate and respond to fashion trends; our success in meeting customer expectations; disruption of our distribution and/or fulfillment operations; continuation of supply agreements and the financial condition of our affiliated business partners; fluctuation of our comparable sales and quarterly financial performance; risks related to our information systems and data; failure to retain our key executives or attract qualified new personnel; our competitiveness with respect to style, price, brand availability and customer service; our reliance on our DSW Rewards program and marketing to drive traffic, sales and customer loyalty; uncertain general economic conditions; our reliance on foreign sources for merchandise and risks inherent to international trade; risks related to our handling of sensitive and confidential data; risks related to leases of our properties; risks related to prior and current acquisitions; foreign currency exchange risk; and risks related to our cash and investments. Additional factors that could cause our actual results to differ materially from our expectations are described in the Company's latest annual or quarterly report, as filed with the SEC. All forward-looking statements speak only as of the time when made. The Company undertakes no obligation to revise the forward-looking statements included in this press release to reflect any future events or circumstances.

 

 

DSW INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)



April 30, 2016


January 30, 2016


May 2, 2015

Assets






Cash and equivalents

$

59,462


$

32,495


$

206,868

Short-term investments

97,612


226,027


128,705

Accounts receivable, net

15,297


15,464


24,181

Inventories

563,317


484,236


512,096

Prepaid expenses and other current assets

32,166


37,446


46,794

Total current assets

767,854


795,668


918,644







Property and equipment, net

373,979


374,241


346,912

Long-term investments

80,456


71,953


120,724

Goodwill

80,684


25,899


25,899

Deferred income taxes

21,217


21,815


31,446

Investment in Town Shoes

18,389


21,188


22,952

Note receivable from Town Shoes

50,618


44,170


46,686

Intangible assets

40,614



Other assets

23,179


14,175


8,697

Total assets

$

1,456,990


$

1,369,109


$

1,521,960







Liabilities and shareholders' equity






Accounts payable

$

197,519


$

215,626


$

195,406

Accrued expenses

125,766


107,800


136,374

Total current liabilities

323,285


323,426


331,780







Non-current and contingent liabilities

200,138


140,759


141,393

Total shareholders' equity

933,567


904,924


1,048,787

Total liabilities and shareholders' equity

$

1,456,990


$

1,369,109


$

1,521,960

 

 

DSW INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



Thirteen weeks ended


April 30, 2016


May 2, 2015

Net sales

$

681,267


$

655,486

Cost of sales

(476,910)


(442,428)

   Gross profit

204,357


213,058

Operating expenses

(154,196)


(139,486)

Change in fair value of contingent consideration

(1,445)


   Operating profit

48,716


73,572

Interest income, net

521


920

Non-operating income

164


3,312

   Income before income taxes and loss from Town Shoes

49,401


77,804

Income tax provision

(19,078)


(29,096)

Loss from Town Shoes

(309)


(1,342)

   Net income

$

30,014


$

47,366





Diluted shares used in per share calculations

82,705


89,624





Earnings per share

$

0.36


$

0.53

 

 

DSW INC.

RECONCILIATION OF ADJUSTED RESULTS

(In thousands, except per share amounts)

(Unaudited)



Thirteen weeks ended April 30, 2016


Pre-tax


Tax effected - net income


Diluted earnings per share

Reported net income



$

30,014


$

0.36







Adjustments:






Transactions costs

$

2,157


1,335

(1)

0.02

Change in fair value of contingent consideration

1,445


870

(2)

0.01

Inventory step-up

160


100

(3)

Amortization of intangible assets

732


440

(3)

0.01







Adjusted net income



$

32,759


$

0.40

(1) Relates to costs associated with the purchase of Ebuys.

(2) The Company agreed to pay additional amounts to Ebuys contingent upon achievement of certain negotiated goals. The Company has recognized a liability for these contingent obligations based on their estimated fair value at the date of acquisition with any differences between the acquisition-date fair value and the ultimate settlement of the obligations being recognized as an adjustment to income from operations.

(3) Reflects incremental expenses related to the purchase accounting write-up of Ebuys tangible and intangible assets to fair market value. The amounts include purchase accounting adjustments related to the step-up of the value of Ebuys' inventory and $41.3 million for other intangibles.

Non-GAAP Measures

In addition to earnings per share and net income determined in accordance with generally accepted accounting principles ("GAAP"), for purposes of evaluating operating performance, the Company uses adjusted measurements, which adjusts for the effects of acquisition accounting adjustments and costs incurred in connection with the Ebuys acquisition. The unaudited reconciliation of adjusted results should not be construed as an alternative to the reported results determined in accordance with GAAP. These financial measures are not based on any standardized methodology and are not necessarily comparable to similar measures presented by other companies. The company believes that this non-GAAP information is useful as an additional means for investors to evaluate the company's operating performance, when reviewed in conjunction with the company's GAAP statements. These amounts are not determined in accordance with GAAP and therefore should not be used exclusively in evaluating the company's business and operations.

 

SOURCE DSW Inc.

For further information: Christina Cheng, 1-855-893-5691, investorrelations@dswinc.com

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