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DSW Inc. Reports Fourth Quarter and Year-End 2011 Financial Results; Provides 2012 Annual Outlook

COLUMBUS, Ohio, March 20, 2012 /PRNewswire/ --  

  • Full year sales increase 11.1% to $2.02 billion; comparable sales increase 8.3%
  • Full year Reported diluted EPS totals $4.54 per share which includes a positive $1.54 per share impact due to the merger with Retail Ventures, Inc. ("RVI") and related items
  • Adjusted diluted EPS rises to $3.00 per share for the full year, up from $2.40 in 2010
  • Fourth quarter sales increase 9.7% to $513.7 million; comparable sales increase 5.6%
  • After a net charge of $0.14 per share due to the merger with Retail Ventures, Inc. ("RVI") and related items, fourth quarter Reported diluted EPS totals $0.37 per share
  • Adjusted diluted EPS rises to $0.51 per share, up from $0.41 in the fourth quarter of 2010
  • Company initiates 2012 annual diluted EPS guidance in the range of $3.20 to $3.35, excluding one-time items from RVI

 

DSW Inc. (NYSE: DSW), a leading branded footwear and accessories retailer, announced financial results for the three-month and twelve-month periods ended January 28, 2012, which compares to the three-month and twelve-month periods ended January 29, 2011.

 

(Logo:  http://photos.prnewswire.com/prnh/20100325/DSWLOGO-a)

"We again posted solid results in the fourth quarter, with our performance driven by continued product excitement, compelling pricing and an efficient shopping experience.  Total sales growth was broad-based across all of our key categories and geographic regions," stated Mike MacDonald, President and Chief Executive Officer, DSW Inc.  

Mr. MacDonald continued, "This concludes a very strong year for our Company in which we grew our total sales by 11%, generated a two-year comparable sales gain of 21.5% and improved our profitability.  We achieved a number of milestones including the completion of our merger with RVI and the successful launch of our mobile website and kids' shoes online.  Our business generated strong cash flow and we returned cash to our shareholders in the form of special and regular quarterly dividends.  Our new stores continue to perform well and, with our strong balance sheet, we are well-positioned to continue to pursue our growth strategies including opening 35 to 40 new stores in 2012.  We look forward to another year of profitable growth."

Fourth Quarter Operating Results

  • Fourth quarter 2011 sales increased 9.7% to $513.7 million compared to last year's fourth quarter sales of $468.5 million.
  • Comparable sales for the fourth quarter 2011 increased 5.6%. This follows a 14.9% increase in comparable sales in the fourth quarter of 2010.
  • Fourth quarter 2011 Reported net income was $19.4 million, or $0.37 per diluted share on 44.8 million weighted average shares outstanding, which included a $3.7 million net charge due to the merger with RVI and related items.  This compares to Reported net income in the fourth quarter of 2010 of $0.2 million, or $0.01 per diluted share on 21.8 million weighted average shares outstanding.
  • Fourth quarter 2011 net income, adjusted for the impact of the merger with RVI and related items, was $23.1 million, or $0.51 per diluted share on 45.3 million weighted average shares outstanding. This compares to Adjusted net income for the same period last year of $18.5 million, or $0.41 per diluted share on 45.1 million weighted average shares outstanding.
  • At the conclusion of this press release is a reconciliation of Reported to Adjusted results.

 

Full Year Operating Results

 

  • Fiscal 2011 sales increased 11.1% to $2.02 billion compared to full year 2010 sales of $1.82 billion.
  • Comparable sales for the full year 2011 increased 8.3%. This follows a 13.2% increase in comparable sales for the full year 2010.
  • Fiscal 2011 Reported net income was $174.8 million, or $4.54 per diluted share on 37.1 million weighted average shares outstanding, which included a $38.6 million net benefit due to the merger with RVI and related items. This compares to Reported net income for the full year 2010 of $17.8 million, or $0.82 per diluted share on 21.6 million weighted average shares outstanding.
  • Fiscal 2011 net income, adjusted for the impact of the merger with RVI and related items, was $136.1 million, or $3.00 per diluted share on 45.3 million weighted average shares outstanding. This compares to Adjusted net income for the full year 2010 of $107.6 million, or $2.40 per diluted share on 44.9 million weighted average shares outstanding.
  • At the conclusion of this press release is a reconciliation of Reported to Adjusted results.

 

Fourth Quarter Balance Sheet Highlights

 

  • Cash and investments totaled $430 million compared to $391 million at the end of the fourth quarter 2010.
  • Inventories were $334 million compared to $309 million at the end of the fourth quarter of 2010. Inventory cost per square foot in DSW stores increased 2% compared to the fourth quarter of 2010.  

 

Regular Dividend

 

On February 29, 2012, DSW's Board of Directors approved the Company's third consecutive quarterly cash dividend payment of $0.15 per share. The dividend will be paid on March 30, 2012 to shareholders of record at the close of business on March 20, 2012.

Fiscal 2012 Annual Outlook

The Company is initiating its annual 2012 guidance. DSW estimates annual comparable sales to increase between 2% to 4% and expects annual diluted earnings per share in the range of $3.20 to $3.35 for fiscal 2012.  The Company's fiscal year 2012 retail calendar includes a fifty-third week compared to a fifty-two week year in fiscal year 2011. This guidance includes only the minimal ongoing operating expenses related to RVI; the impact of the mark-to-market adjustment on the warrants and one-time items will continue to be excluded from Adjusted earnings for Fiscal 2012.

Webcast and Conference Call

To hear the Company's live earnings conference call, log on to http://www.dswinc.com/ today at 8:30 AM Eastern, or call (800) 860-2442. To hear a replay of the earnings call, which will be available approximately two hours after the conference call ends, dial (877) 344-7529, followed by conference number 10011482. 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 March 20, 2012, DSW operated 328 stores in 40 states and operated an e-commerce site, http://www.dsw.com, and a mobile website, http://m.dsw.com.  DSW also supplied footwear to 341 leased locations in the United States.  For store locations and additional information about DSW, visit http://www.dswinc.com. Follow DSW on Twitter at http://twitter.com/DSWShoeLovers and "like" DSW on Facebook at http://www.facebook.com/DSW.

DSW INC.

Q4 AND YEAR-TO-DATE 2011 SEGMENT RESULTS

 

Net sales by reportable segment: 

                 
                             
     

Three Months Ended

     

Year Ended

     
     

January 28, 2012

 

January 29, 2011

 

% increase

 

January 28, 2012

 

January 29, 2011

 

% increase

 
     

(in millions)

     

(in millions)

     
                             

DSW

   

$                         475.5

 

$                         434.3

 

9.5%

 

$                      1,871.9

 

$                      1,680.9

 

11.4%

 

Leased Business Division

38.2

 

34.2

 

11.8%

 

152.4

 

141.5

 

7.7%

 

Total DSW Inc.

 

$                         513.7

 

$                         468.5

 

9.7%

 

$                      2,024.3

 

$                      1,822.4

 

11.1%

 
                           

 

Comparable sales change by reportable segment:

             
                     
     

Three Months Ended

 

Year Ended

 
     

January 28, 2012

 

January 29, 2011

 

January 28, 2012

 

January 29, 2011

 
             

DSW

   

5.9%

 

15.6%

 

8.6%

 

14.0%

 

Leased Business Division

1.4%

 

7.0%

 

5.1%

 

4.6%

 

Total DSW Inc.

 

5.6%

 

14.9%

 

8.3%

 

13.2%

 
                   

 

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 2012 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; continuation of supply agreements and the financial condition of our leased business partners; disruption of our distribution and fulfillment operations; 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 to drive traffic, sales and customer loyalty; maintaining good relationships with our vendors; our ability to anticipate and respond to fashion trends; fluctuation of our comparable sales and quarterly financial performance; uncertain general economic conditions; our reliance on foreign sources for merchandise and risks inherent to international trade; risks related to our cash and investments;  the anticipated benefits of the merger with RVI taking longer to realize or not being achieved in their entirety; and the realization of risks related to the merger with RVI, including risks related to pre-merger RVI  guarantees of certain Filene's Basement leases. 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)

 
   

    As of

   

As of

 
   

January 28, 2012

   

January 29, 2011

 
             

Assets

           

Cash and equivalents

$

79,003

 

$

99,126

 

Short-term investments

 

296,697

   

241,557

 

Accounts receivable, net

 

16,996

   

13,186

 

Inventories

 

334,390

   

309,013

 

Prepaid expenses and other current assets

 

24,448

   

30,900

 

Deferred income taxes

 

116,473

   

49,354

 

Total current assets

 

868,007

   

743,136

 
             

Property and equipment, net

 

235,726

   

212,342

 

Long-term investments

 

53,858

   

49,987

 

Goodwill

 

25,899

   

25,899

 

Deferred income taxes

 

15,653

       

Other assets

 

8,757

   

10,113

 

Total assets

$

1,207,900

 

$

1,041,477

 
             

Liabilities and shareholders' equity

           

Accounts payable

$

151,248

 

$

150,276

 

Accrued expenses

 

126,998

   

113,100

 

Conversion feature of short-term debt

       

6,375

 

Warrant liability

 

29,303

   

20,624

 

Current maturities of long-term debt

       

132,132

 

Total current liabilities

 

307,549

   

422,507

 
             

Deferred income taxes and other non-current liabilities

 

113,764

   

130,101

 

Total shareholders' equity

 

786,587

   

488,869

 

Total liabilities and shareholders' equity

$

1,207,900

 

$

1,041,477

 
           

 

DSW INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

and

RECONCILIATION OF ADJUSTED RESULTS

(In thousands, except per share amounts)

(Unaudited)

 
   

Three months ended

 

Adjustments

 

Three months ended

 
   

January 28, 2012

   

January 28, 2012

 
   

Reported

   

Adjusted

 

Net sales

 

$       513,684

     

$        513,684

 

Cost of sales

 

(367,721)

     

(367,721)

 

Operating expenses

 

(109,026)

(1)

$               700

 

(108,326)

 

Change in fair value of derivative instruments

 

2,981

(2)

(2,981)

     

Operating profit

 

39,918

 

(2,281)

 

37,637

 

Interest (expense) income, net

 

33

(3)

40

 

73

 

Income from continuing operations before income taxes

 

39,951

 

(2,241)

 

37,710

 

Income tax provision

 

(15,556)

(4)

913

 

(14,643)

 

Income from continuing operations

 

24,395

 

(1,328)

 

23,067

 

Total net loss from discontinued operations, net of tax

 

(5,028)

(5)

5,028

     

Net income

 

$               19,367

 

$            3,700

 

$         23,067

 
               
               

Adjustments to net income for diluted earnings per share calculation:

             

Less: Gain in fair value of warrants

 

(2,981)

(6)

2,981

     

Net income for diluted earnings per share calculation

 

$               16,386

(6)

$              6,681

 

$                23,067

 
               
               

Diluted shares used in per share calculations:

 

44,782

(7)

   

45,313

 
               

Diluted (loss) earnings per share:

             

Diluted earnings per share from continuing operations

 

$                     0.48

     

$               0.51

 

Diluted earnings per share from discontinued operations

 

$                   (0.12)

         

Diluted earnings per share

 

$                    0.37

     

$               0.51

 
   
               

 

Notes:

  1. In addition to RVI-related expenses, also reflects pension, cure payment for RVI-owned property, recovery from Filene's Basement's 2009 bankruptcy and current legal fees related to RVI lease guarantees.
  2. Change in fair value of derivative instruments, which relate to RVI's warrants.
  3. Interest expense related to RVI-related tax penalty.
  4. Reflects impact of RVI-related tax expense.
  5. Reflects the removal of discontinued operations, which relate to the guarantees of two Filene's Basement leases.
  6. Net income for the diluted earnings per share calculation is adjusted for the change in fair value of warrants.
  7. The Reported weighted average shares outstanding represent DSW Class A Common Shares and Class B Common Shares as well as the warrants and other dilutive instruments. Adjusted shares used in the per share calculations reflect DSW's weighted average shares outstanding as of the first quarter, prior to the merger with RVI.

 

   
   

Three months ended

 

Adjustments

 

Three months ended

 
   

January 29, 2011

   

January 29, 2011

 
   

Reported

   

Adjusted

 

Net sales

 

$        468,450

     

$         468,450

 

Cost of sales

 

(335,072)

     

(335,072)

 

Operating expenses

 

(100,157)

(1)

$       (1,950)

 

(102,107)

 

Change in fair value of derivative instruments

 

(3,171)

(2)

3,171

     

Operating profit

 

30,050

 

1,221

 

31,271

 

Interest (expense) income, net

 

(2,906)

(3)

3,135

 

229

 

Income from continuing operations before income taxes

 

27,144

 

4,356

 

31,500

 

Income tax provision

 

(21,441)

(4)

8,414

 

(13,027)

 

Income from continuing operations

 

5,703

 

12,770

 

18,473

 

Total income from discontinued operations, net of tax

 

1,467

(5)

(1,467)

     

Net income

 

7,170

 

11,303

 

18,473

 

Less: net income attributable to the noncontrolling interests

 

(7,012)

(6)

7,012

     

Net income, net of noncontrolling interests

 

$               158

 

$       18,315

 

$           18,473

 
               

Diluted shares used in per share calculations:

 

21,774

(7)

   

45,137

 
               

Diluted (loss) earnings per share:

             

Diluted (loss) earnings per share from continuing operations, net of noncontrolling interests

 

$             (0.06)

     

$                0.41

 

Diluted earnings per share from discontinued operations

 

$              0.07

         

Diluted earnings per share, net of noncontrolling interests

 

$              0.01

     

$                0.41

 
   
               

 

 

Notes:

  1. Reflects RVI-related operating income, net of expenses.
  2. Change in fair value of derivative instruments, which relate to RVI's PIES and warrants.
  3. Interest expense related to the PIES.
  4. Reflects impact of RVI-related tax expense.
  5. Reflects the removal of discontinued operations, which relate to RVI's dispositions of Value City and Filene's Basement.
  6. Reflects the removal of the noncontrolling interest in DSW that RVI recorded prior to the merger date.
  7. Reported weighted average shares outstanding reflect the RVI weighted average shares outstanding adjusted for the 0.435 exchange ratio, as previously reported by RVI. Adjusted weighted average shares outstanding reflect what DSW previously reported during this period.

 

   
   

Fiscal year ended

 

Adjustments

 

Fiscal year ended

 
   

January 28, 2012

   

January 28, 2012

 
   

Reported

   

Adjusted

 

Net sales

 

$           2,024,329

     

$           2,024,329

 

Cost of sales

 

(1,370,382)

     

(1,370,382)

 

Operating expenses

 

(448,583)

(1)

$            17,263

 

(431,320)

 

Change in fair value of derivative instruments

 

(53,914)

(2)

53,914

     

Operating profit

 

151,450

 

71,177

 

222,627

 

Interest (expense) income, net

 

(9,181)

(3)

10,524

 

1,343

 

Income from continuing operations before income taxes

 

142,269

 

81,701

 

223,970

 

Income tax benefit (provision)

 

58,069

(4)

(145,895)

 

(87,826)

 

Income from continuing operations

 

200,338

 

(64,194)

 

136,144

 

Net loss from discontinued operations, net of tax

 

(4,855)

(5)

4,855

     

Net income

 

$              195,483

 

$          (59,339)

 

$               136,144

 

Less: net income attributable to the noncontrolling interests

 

(20,695)

(6)

20,695

     

Net (loss) income, net of noncontrolling interests

 

$             174,788

 

$         (38,644)

 

$              136,144

 
               

Adjustments to net income for diluted earnings per share calculation:

             

Less: Gain in fair value of PIES and tax effected other PIES  expenses

 

(6,019)

(7)

6,019

     

Net income for diluted earnings per share calculation

 

$              168,769

(7)

$        (32,625)

 

$       136,144

 
               

Diluted shares used in per share calculations:

 

37,138

(8)

   

45,313

 
               

Diluted earnings per share:

             

Diluted earnings per share from continuing operations

 

$                     4.68

     

$               3.00

 

Diluted (loss) earnings per share from discontinued operations

 

$                    (0.14)

         

Diluted earnings per share

 

$                     4.54

     

$               3.00

 
   
               

 

 

Notes:

  1. In addition to RVI-related and merger-related expenses, also reflects lease and asset impairment of $5.0M related to an RVI office lease.
  2. Change in fair value of derivative instruments, which relate to RVI's PIES and warrants.
  3. Interest expense related to the PIES and RVI's deferred financing costs.
  4. Reflects impact of RVI-related reversal of valuation allowance on NOLs and other merger-related items.
  5. Reflects the removal of discontinued operations, which relate to RVI's disposition of Filene's Basement and guarantees of two Filene's Basement leases.
  6. Reflects the removal of the noncontrolling interest in DSW that RVI recorded prior to the merger date.
  7. Net income for the diluted earnings per share calculation is adjusted for the change in fair value of PIES and related tax-effected interest expense.
  8. The Reported weighted average shares outstanding represent DSW Class A Common Shares and Class B Common Shares as well as the PIES and other dilutive instruments. Adjusted shares used in the per share calculations reflect DSW's weighted average shares outstanding as of the first quarter, prior to the merger with RVI.

 

   
   

Fiscal year ended

 

Adjustments

 

Fiscal year ended

 
   

January 29, 2011

   

January 29, 2011

 
   

Reported

   

Adjusted

 

Net sales

 

$         1,822,376

     

$         1,822,376

 

Cost of sales

 

(1,256,695)

     

(1,256,695)

 

Operating expenses

 

(396,107)

(1)

$           4,009

 

(392,098)

 

Change in fair value of derivative instruments

 

(49,014)

(2)

49,014

     

Operating profit

 

120,560

 

53,023

 

173,583

 

Interest (expense) income, net

 

(10,267)

(3)

12,463

 

2,196

 

Non-operating income

 

1,500

     

1,500

 

Income from continuing operations before income taxes

 

111,793

 

65,486

 

177,279

 

Income tax provision

 

(59,973)

(4)

(9,682)

 

(69,655)

 

Income from continuing operations

 

51,820

 

55,804

 

107,624

 

Total income from discontinued operations, net of tax

 

6,628

(5)

(6,628)

     

Net income

 

58,448

 

49,176

 

107,624

 

Less: net income attributable to the noncontrolling interests

 

(40,654)

(6)

40,654

     

Net income, net of noncontrolling interests

 

$          17,794

 

$          89,830

 

$              107,624

 
               

Diluted shares used in per share calculations:

 

21,576

(7)

   

44,918

 
               

Diluted earnings per share:

             

Diluted earnings per share from continuing operations, net of noncontrolling interests

 

$              0.52

     

$                2.40

 

Diluted earnings per share from discontinued operations

 

$              0.31

         

Diluted earnings per share, net of noncontrolling interests

 

$              0.82

     

$                2.40

 
   
               

 

 

Notes:

  1. Reflects RVI-related operating expenses, net of income.
  2. Change in fair value of derivative instruments, which relate to RVI's PIES and warrants.
  3. Interest expense related to the PIES.
  4. Reflects impact of RVI-related tax benefit.
  5. Reflects the removal of discontinued operations, which relate to RVI's dispositions of Value City and Filene's Basement.
  6. Reflects the removal of the noncontrolling interest in DSW that RVI recorded prior to the merger date.
  7. Reported weighted average shares outstanding reflect the RVI weighted average shares outstanding adjusted for the 0.435 exchange ratio, as previously reported by RVI. Adjusted weighted average shares outstanding reflect what DSW previously reported during this period.

 

This release contains certain Adjusted financial measures. These measures are included as a complement to Reported results because management believes these Adjusted financial measures help explain underlying performance trends in DSW's business and provide useful information to both management and investors. The unaudited Condensed Consolidated Statements of Operations and Reconciliation of Adjusted Results should not be construed as an alternative to the Reported results determined in accordance with generally accepted accounting principles. Further, DSW's definition of Adjusted income information may differ from similarly titled measures used by other companies. While it is not possible to predict future results, management believes the Adjusted information is useful to investors for the assessment of the ongoing operations of DSW. The unaudited Condensed Consolidated Statements of Operations  and Reconciliation of Adjusted Results should be read in conjunction with DSW's and RVI's historical financial statements and notes thereto contained in DSW's and RVI's quarterly reports on Form 10-Q and annual report on Form 10-K.

 

SOURCE DSW Inc.

For further information: Company Contact: Jennie Wilson, DSW Inc., Senior Vice President Finance & Controller, +1-855-893-5691; Investor Contacts: ICR, Inc., Allison Malkin / Anne Rakunas, +1-203-682-8200 / +1-310-954-1113

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