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DSW Inc. Reports Fourth Quarter and Fiscal Year 2016 Financial Results
- Fourth quarter sales increased 0.4% to $674.6 million; comparable sales decreased 7%
- Fourth quarter Reported EPS of $0.38 per diluted share, for a full year Reported EPS of $1.52 per diluted share
- Fourth quarter Adjusted EPS of $0.20 per diluted share, an increase of 43% over last year, resulting in a full year Adjusted EPS of $1.46 per diluted share
- Returned nearly $115 million to shareholders, including $50 million in share repurchases, during fiscal 2016
- Fiscal 2017 EPS guidance of $1.45 to $1.55 per share, including up to $0.10 per share related to the discontinuation of the Company's leased business with Gordmans
- Board of Directors declare quarterly dividend of $0.20 per share

COLUMBUS, Ohio, March 14, 2017 /PRNewswire/ -- DSW Inc. (NYSE: DSW), a leading branded footwear and accessories retailer, announced financial results for the thirteen week and fifty-two week periods ended January 28, 2017, compared to the thirteen week and fifty-two week periods ended January 30, 2016.

Roger Rawlins, Chief Executive Officer stated, "Our fourth quarter continued our return to year over year profitability growth, with top line results that met our comp guidance. Inventory management and a product-focused campaign drove significantly higher gross margin, which, coupled with better expense control, resulted in a 22% increase in adjusted earnings per share this fall season."

"After making fundamental changes to our core business last year, we are laser focused on driving comp growth through our merchandise and allocation initiatives and the elevation of our customer's digital experience. Furthermore, we are building a foundation to support the growth of Ebuys and Town Shoes and to leverage synergies across all of our retail brands," Mr. Rawlins added.

The Company achieved several important milestones in fiscal 2016:

  • Total company revenues hit a new high of $2.7 billion;
  • Opened the Company's 500th location in the United States;
  • Successfully expanded DSW's presence in Canada with 23 locations, with plans to open the Company's first two stores outside North America;
  • Drove robust growth in digital demand;
  • Established DSW's presence in new digital marketplaces with the acquisition of Ebuys, Inc.;
  • Successfully launched DSW kids shops at 227 locations with plans to open 77 additional locations in 2017;
  • Invested in talent across the organization to form strong, high performing teams;
  • Completed a comprehensive expense management initiative that identified $25 million in cost savings on an annualized basis;
  • Returned $115 million to shareholders, including $65 million in dividends and $50 million in share repurchases.

Fourth Quarter Operating Results

  • Sales increased 0.4% to $674.6 million, including $27.9 million of revenues from Ebuys.
  • Comparable sales decreased 7% compared to last year's 0.7% increase.
  • Reported gross profit increased by 50 bps, driven by a significant reduction in markdowns and favorable sourcing costs, partially offset by the expected deleverage in occupancy expense, the increased mix of acquisition revenues, and 10 bps of inventory step up costs related to Ebuys.
  • Reported operating expenses improved by 50 bps, with reductions in store related expenses and corporate overhead, partly offset by 20 bps from the amortization of Ebuys intangibles and restructuring expenses.
  • Reported net income was $30.5 million, or $0.38 per diluted share, which included a net favorable adjustment of $0.18 per share related to the reduction of its contingent consideration liability, the amortization of acquired intangibles and inventory step-up costs related to Ebuys, and restructuring expenses.
  • Adjusted net income was $16.5 million, or $0.20 per diluted share, an increase of 43% over last year.

Full Year Operating Results

  • Sales increased 3.5% to $2.7 billion, including $83.9 million from the Company's acquisition of Ebuys. 
  • Comparable sales decreased by 3% compared to last year's 0.8% increase.
  • Reported net income was $124.5 million, or $1.52 per diluted share, which included a net favorable adjustment of $0.06 per share related to the reduction of its contingent consideration liability, the amortization of acquired intangibles, transaction costs and inventory step-up costs related to Ebuys, and restructuring expenses.
  • Adjusted net income was $120.1 million, or $1.46 per diluted share, a 5% decrease from last year.

Fourth Quarter Balance Sheet Highlights

  • Cash, short-term and long-term investments totaled $287 million compared to $330 million the previous year.
  • Inventories were $500 million compared to $484 million last year, including $31 million from Ebuys. On a cost per square foot basis, DSW inventories declined by 8%.
  • The Company repurchased 0.4 million shares for $7.3 million this quarter. For the full year, the Company repurchased a total of 2.4 million shares for a total of $50 million and has $33.5 million remaining under its share repurchase program.

Regular Dividend
DSW Inc.'s Board of Directors declared a quarterly cash dividend of $0.20 per share. The dividend will be paid on March 31, 2017 to shareholders of record at the close of business on March 17, 2017.

Fiscal 2017 Annual Outlook
For the fifty-three week period ending February 3, 2018, the Company expects revenue growth of 3% to 5%, with comparable sales to range from a flat to low single digit decline compared to the prior year. The Company expects to open 12 to 15 net new locations. 

Full year adjusted earnings per share is expected to range between $1.45 to $1.55 per diluted share, assuming a tax rate of 39% and 81 million shares outstanding. Guidance includes the estimated impact from the discontinuation of the Company's leased business with Gordmans up to $0.10 per share. Guidance does not include the impact of acquisition related items, including amortization of intangible assets and changes in the fair value of the contingent consideration liability.

Webcast
The company will conduct a conference call today at 8:30 a.m. Eastern Time. The conference will be broadcast live over the internet and can be accessed at http://dswinc.investorroom.com. For those unable to listen to the live broadcast, an archived version will be available at the same location until April 11, 2017 at 7:00 pm EDT. The teleconference will be available on replay and can be accessed by dialing 1-877-344-7529 and entering passcode 10102531.

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 March 14, 2017, DSW operates 502 stores in 43 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 also supplies footwear to 392 leased locations in the United States under the Affiliated Business Group. DSW also owns Ebuys, Inc., 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, visit http://www.dswinc.com. Follow DSW on Twitter at http://twitter.com/DSWShoeLovers and Facebook at http://www.facebook.com/DSW.

 

 

DSW INC.

FOURTH QUARTER AND FISCAL YEAR 2016 SEGMENT RESULTS

(unaudited)



Net sales by segment


Thirteen weeks ended

Fifty-two weeks ended


January 28, 2017


January 30, 2016


% change


January 28, 2017


January 30, 2016


% change


(in thousands)













DSW segment

$

611,895



$

636,535



(3.9)

%


$

2,477,991



$

2,470,107



0.3

%

ABG segment

34,848



35,501



(1.8)

%


149,586



150,141



(0.4)

%

Other

27,874







83,867






DSW Inc.

$

674,617



$

672,036



0.4

%


$

2,711,444



$

2,620,248



3.5

%

 

Comparable sales change by reportable segment


Thirteen weeks ended


Fifty-two weeks ended


January 28, 2017


January 30, 2016


January 28, 2017


January 30, 2016

DSW segment

(7.1)%


0.5%


(2.9)%


0.8%

ABG segment

(6.0)%


4.1%


(3.7)%


1.7%

DSW Inc.

(7.0)%


0.7%


(3.0)%


0.8%










Stores and square footage data






As of






January 28, 2017


January 30, 2016

DSW stores open, end of period





501


468

DSW total square footage (in thousands)





10,336


9,805









 

 

Reported gross profit by segment


Thirteen weeks ended


Fifty-two weeks ended


January 28, 2017


January 30, 2016


January 28, 2017


January 30, 2016

DSW segment merchandise margin

40.4

%


37.7

%


43.1

%


42.8

%

Store occupancy expense

(11.4)



(10.3)



(11.1)



(10.7)


Distribution and fulfillment expenses

(2.2)



(2.2)



(2.2)



(2.1)


DSW segment gross profit

26.8

%


25.2

%


29.8

%


30.0

%









ABG segment merchandise margin

36.9

%


33.8

%


42.4

%


41.1

%

Store occupancy expense

(20.5)



(20.5)



(20.4)



(21.4)


Distribution and fulfillment expenses

(1.1)



(1.1)



(1.1)



(1.1)


ABG segment gross profit

15.3

%


12.2

%


20.9

%


18.6

%









Other segment merchandise margin

23.1

%


%


28.8

%


%

Marketplace fees

(11.6)





(11.8)




Distribution and fulfillment expenses

(13.8)





(13.2)




Other segment gross profit(1)

(2.3)

%


%


3.8

%


%









Total company gross profit

25.0

%


24.6

%


28.5

%


29.3

%


(1)   Reported Other gross profit for the period ended January 28, 2017 includes $1.8 million related to the step-up of the value of Ebuys' inventory.

 

 

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 2017 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 growing our store base and digital demand; our ability to protect our reputation; 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 agreements and the financial condition of our affiliated business and international partners; our ability to successfully integrate Ebuys Inc.; 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; risks related to future legislation, regulatory reform or policy changes; 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 Securities and Exchange Commission. 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)



January 28, 2017


January 30, 2016

Assets




Cash and cash equivalents

$

110,657



$

32,495


Short-term investments

98,530



226,027


Accounts receivable, net

19,006



15,464


Inventories

499,995



484,236


Prepaid expenses and other current assets

31,078



37,446


Total current assets

759,266



795,668






Property and equipment, net

375,251



374,241


Long-term investments

77,904



71,953


Goodwill

79,689



25,899


Deferred income taxes

14,934



21,815


Equity investment in Town Shoes

15,830



21,188


Note receivable from Town Shoes

53,121



44,170


Intangible assets

35,108



46


Other assets

17,373



14,129


Total assets

$

1,428,476



$

1,369,109






Liabilities and shareholders' equity




Accounts payable

$

186,271



$

215,626


Accrued expenses

130,334



107,800


Total current liabilities

316,605



323,426






Non-current liabilities

174,383



140,759


Total shareholders' equity

937,488



904,924


Total liabilities and shareholders' equity

$

1,428,476



$

1,369,109


 

 

DSW INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)




Thirteen weeks ended


Fifty-two weeks ended



January 28, 2017


January 30, 2016


January 28, 2017


January 30, 2016

Net sales


$

674,617



$

672,036



$

2,711,444



$

2,620,248


Cost of sales


(505,782)



(506,993)



(1,939,611)



(1,851,879)


Gross profit


168,835



165,043



771,833



768,369


Operating expenses


(145,120)



(147,974)



(591,816)



(554,818)


Change in fair value of contingent
consideration


25,231





20,151




Operating profit


48,946



17,069



200,168



213,551


Interest income, net


515



838



2,141



3,462


Non-operating income (expense)


(6)



(20)



338



3,178


Pre-tax income from continuing operations


49,455



17,887



202,647



220,191


Income tax provision


(18,433)



(6,649)



(78,853)



(83,806)


Income (loss) from Town Shoes


(496)



525



741



(351)


Net income


$

30,526



$

11,763



$

124,535



$

136,034











Diluted earnings per share


$

0.38



$

0.14



$

1.52



$

1.54











Weighted average diluted shares


80,657



86,235



82,135



88,501


 

 

DSW INC.

NON-GAAP RECONCILIATION

(in thousands, except per share amounts)

(unaudited)



Thirteen weeks ended

January 28, 2017


Fifty-two weeks ended

January 28, 2017

Reported net income

$

30,526



$

124,535






Adjustments:




Inventory step-up costs(1)

533



1,757


Transaction costs(2)

(29)



2,259


Amortization of intangible assets(2)

832



3,734


Restructuring expenses(4)

467



4,543


Change in fair value of contingent consideration liability(3)

(25,232)



(20,151)


Total adjustments, pre-tax

(23,429)



(7,858)


Tax effect of adjustments

9,417



3,411


Total adjustments, after tax

(14,012)



(4,447)


Adjusted net income

$

16,514



$

120,088






Reported diluted earnings per share

$

0.38



$

1.52


Adjusted diluted earnings per share

$

0.20



$

1.46





(1)

Relates to the step-up of the value of Ebuys' inventory, which is recorded in gross profit.



(2)

Relates to costs associated with the acquisition of Ebuys and the amortization expense associated with $38.7 million of acquired intangibles, which are recorded within operating expenses.



(3)

The Company agreed to pay additional amounts to Ebuys contingent upon achievement of certain negotiated goals. The Company has recognized a liability for this contingent consideration based on the 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.



(4)

Relates to the Company's expense management initiative in 2016, recorded within operating expenses.

 

Non-GAAP Measures

In addition to earnings per share and net income determined in accordance with accounting principles generally accepted in the United States ("GAAP"), for purposes of evaluating operating performance, the Company uses adjusted earnings per share and net income, which adjust for the effects of acquisition costs and the amortization expense of acquired intangible assets related to the Ebuys acquisition, as well as restructuring costs related to the Company's expense management initiative. 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: For further information: Christina Cheng, 1-855-893-5691, investorrelations@dswinc.com

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