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DSW INC. (DSW)

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DSW Inc. : Reports First Quarter 2012 Financial Results

05/22/2012 | 07:05am US/Eastern
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COLUMBUS, Ohio, May 22, 2012 /PRNewswire/ --

    --  Sales increased 10.9% to $558.6 million; comparable sales increased 7.6%
    --  Including $0.09 of charges related to RVI, Reported EPS is $0.89 per
        share, which compares to a loss of $1.74 per share last year, including
        $2.61 of charges related to RVI
    --  Adjusted EPS $0.98 per share increased 12.6% from $0.87 in the first
        quarter of 2011
    --  Company raises its full year EPS guidance to $3.25 to $3.40, up from its
        prior guidance of $3.20 to $3.35, excluding one-time items from RVI
    --  Board of Directors approves a 20% increase to the quarterly dividend,
        from $0.15 per share to $0.18 per share

DSW Inc. (NYSE: DSW), a leading branded footwear and accessories retailer, announced financial results for the three-month period ended April 28, 2012, which compares to the three-month period ended April 30, 2011.

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

"We are delighted with our strong start to the year, a further validation of the increasing preference for DSW by our customers and the strong execution of our strategies by our DSW team. During the quarter, total company sales grew by 10.9% to $558.6 million, including a 7.6% increase in comparable sales, following a 10.8% comparable sales gain last year reflecting balanced growth across categories," stated Mike MacDonald, President and Chief Executive Officer, DSW Inc. "Earnings were at record levels despite absorbing incremental costs related to the acceleration in our store expansion."

Mr. MacDonald continued, "Solid execution on our strategy has led to continued strength in our business performance, and provides us with a strong platform for sustained growth. Our new stores continue to perform well and we are on track to open 35 to 40 new stores in 2012. We are confident that we will meet our objective of another year of profitable growth and as such as we are raising our full year guidance to $3.25 to 3.40, an increase of $0.05 over our prior guidance of $3.20 to 3.35."

First Quarter Operating Results

    --  Sales increased 10.9% to $558.6 million compared to last year's first
        quarter sales of $503.6 million.
    --  Comparable sales for the first quarter 2012 increased by 7.6%. This
        follows an increase of 10.8% in comparable sales in the first quarter of
        2011.
    --  Reported net income was $39.9 million, or $0.89 per diluted share on
        44.7 million weighted average shares outstanding, which included a $4.3
        million after-tax net charge related to RVI. This compares to Reported
        net loss in the first quarter of 2011 of $38.1 million, or $1.74 per
        diluted share on 21.9 million weighted average shares outstanding, which
        included a $77.7 million after-tax net charge related to the merger with
        RVI.
    --  Net income, adjusted for the impact of items related to RVI was $44.1
        million, or $0.98 per diluted share on 45.2 million weighted average
        shares outstanding. This compares to Adjusted net income for the same
        period last year of $39.6 million, or $0.87 per diluted share on 45.3
        million weighted average shares outstanding.
    --  Reported net loss and loss per share for the first quarter 2011 now
        reflect the impact of the merger with RVI as if the merger had taken
        place at the beginning of fiscal 2011. Adjusted net income and earnings
        per share for the first quarter 2011 now exclude any impact from the
        merger with RVI. The Company has provided a table that includes the
        recast historical quarterly results for the first quarter 2011 at the
        conclusion of this press release.

First Quarter Balance Sheet Highlights

    --  Cash and investments totaled $448 million compared to $400 million at
        the end of the first quarter 2011.
    --  Inventories were $373 million compared to $334 million at the end of the
        first quarter of 2011, an increase of 11.6%. Inventories cost per square
        foot for DSW stores increased by 5% at the end of the quarter.

Regular Dividend

DSW's Board of Directors approved an increase in the Company's dividend from $0.15 per share to $0.18 per share, an increase of 20%. The dividend will be paid on June 29, 2012 to shareholders of record at the close of business on June 19, 2012.

Fiscal 2012 Annual Outlook

The Company is raising its annual 2012 guidance to a range of $3.25 to $3.40 for fiscal 2012 compared to prior guidance of $3.20 to $3.35. Comparable sales are projected to increase in the range of 3% to 5%, compared to earlier guidance for an increase in the 2% to 4% range. 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 the 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 10013888. 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 22, 2012, DSW operated 336 stores in 41 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.
                                                                              Q1 SEGMENT RESULTS

    Net sales by reportable segment:

                                                Three Months Ended
                                                ------------------
                                April 28,                           April 30,
                                   2012                                2011                               % increase
                               ----------                          ----------                             ----------
                                         (in millions)

    DSW                                                 $521.2                                   $462.4              12.7%
    Leased
     Business
     Division                        37.4                                41.2                           (9.2)%
                                     ----                                ----
    Total DSW
     Inc.                                               $558.6                                   $503.6              10.9%
                                                        ======                                   ======


    Comparable sales change by reportable segment:

                               Three Months Ended
                               ------------------
                                 April 28, 2012    April 30, 2011
                                 --------------    --------------

    DSW                                       8.0%            10.9%
    Leased Business Division                  2.3%             9.2%
    Total DSW Inc.                            7.6%            10.8%

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
                                         April 28, 2012                  January 28,
                                                                             2012
                                         --------------                 ------------

    Assets
    Cash and
     equivalents                                             $76,547                     $79,003
    Short-term
     investments                                294,728                       296,697
    Accounts
     receivable,
     net                                         18,790                        16,996
    Inventories                                 373,255                       334,390
    Prepaid
     expenses
     and other
     current
     assets                                      26,870                        24,448
    Deferred
     income
     taxes                                      116,136                       116,473
                                                -------                       -------
    Total
     current
     assets                                     906,326                       868,007
                                                -------                       -------

    Property and
     equipment,
     net                                        245,641                       235,726
    Long-term
     investments                                 77,218                        53,858
    Goodwill                                     25,899                        25,899
    Deferred income taxes                                                      15,653
    Other assets                                  8,523                         8,757
                                                  -----                         -----
    Total assets                                          $1,263,607                  $1,207,900
                                                          ----------                  ----------

    Liabilities and shareholders'
     equity
    Accounts
     payable                                                $158,899                    $151,248
    Accrued
     expenses                                   112,408                       126,998
    Warrant
     liability                                   16,055                        29,303
                                                 ------                        ------
    Total
     current
     liabilities                                287,362                       307,549
                                                -------                       -------

    Non-current
     liabilities                                121,537                       113,764
    Total
     shareholders'
     equity                                     854,708                       786,587
                                                -------                       -------
    Total
     liabilities
     and
     shareholders'
     equity                                               $1,263,607                  $1,207,900
                                                          ----------                  ----------




                                                                                                   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
                                                                                              -----------
                                                              April 28, 2012                               April 28, 2012
                                                                  Reported                                    Adjusted
                                                                  --------                                    --------
    Net sales                                                                       $558,572                                                             $558,572
    Cost of sales                                                     (365,982)                                                         (365,982)
    Operating expenses                                                (121,923)                        (1)                                  $325                   (121,598)
    Change in fair value of derivative instruments                      (5,342)                        (2)                     5,342
                                                                        ------
    Operating profit                                                    65,325                                      5,667                         70,992
    Interest income, net                                                   467                                                               467
                                                                           ---                                                               ---
    Income from continuing operations before income taxes               65,792                                      5,667                         71,459
    Income tax provision                                               (27,185)                        (3)                      (153)                     (27,338)
                                                                                                                                ----
    Income from continuing operations                                   38,607                                      5,514                         44,121
    Total income from discontinued operations, net of tax                1,253                         (4)                    (1,253)
                                                                         -----                                                ------
    Net income                                                                       $39,860                                              $4,261                             $44,121

    Diluted shares used in per share calculations:                      44,658                         (5)                                        45,203

    Diluted earnings per share:
    Diluted earnings per share from continuing operations                              $0.86                                                                $0.98
    Diluted earnings per share from discontinued operations                            $0.03
    Diluted earnings per share                                                         $0.89                                                                $0.98

Notes:

1) Reflects legal fees related to the settlement of RVI shareholder litigation and other RVI legal expenses.

2) Change in fair value of derivative instruments, which relate to RVI's warrants.

3) Reflects impact of RVI-related tax expense.

4) Reflects the removal of discontinued operations.

5) The Reported weighted average shares outstanding represent DSW Class A Common Shares and Class B Common Shares as well as dilutive instruments. Adjusted shares used in the per share calculations reflect DSW's weighted average shares outstanding and assumed full exercise of warrants at the beginning of the period.



                                                                   Three months ended            Adjustments                 Three months ended
                                                                                                 -----------
                                                                     April 30, 2011                           April 30, 2011
                                                                         Reported                                Adjusted
                                                                         --------                                --------
    Net sales                                                                          $503,588                                                                   $503,588
    Cost of sales                                                            (331,438)                                                           (331,438)
    Operating expenses                                                       (112,619)                    (1)                                      $5,187                   (107,432)
    Change in fair value of derivative instruments                            (54,876)                    (2)                            54,876
    Operating profit                                                            4,655                                 60,063                               64,718
    Interest (expense) income, net                                             (3,145)                    (3)                             3,577                        432
                                                                               ------                                                     -----                        ---
    Income from continuing operations before income taxes                       1,510                                 63,640                               65,150
    Income tax provision                                                      (24,939)                    (4)                              (648)                   (25,587)
                                                                              -------                                                      ----                    -------
    (Loss) income from continuing operations                                  (23,429)                                62,992                               39,563
    Total net loss from discontinued operations, net of tax
    Net (loss) income                                                                   (23,429)                                                   62,992                             39,563
    Less: net income attributable to the noncontrolling interests             (14,694)                                14,694
                                                                              -------                                 ------
    Net income (loss), net of noncontrolling interests                                 $(38,123)                                        $77,686                               $39,563

    Diluted shares used in per share calculations:                             21,900                     (5)                                              45,313

    Diluted (loss) earnings per share:
    Diluted (loss) earnings per share from continuing operations                         $(1.74)                                                                     $0.87
    Diluted (loss) earnings per share from discontinued operations
    Diluted (loss) earnings per share                                                    $(1.74)                                                                     $0.87

Notes:

1) Reflects DSW and RVI transaction costs and RVI-related expenses.

2) Change in fair value of derivative instruments, which relate to RVI's warrants.

3) Interest expense related to Premium Income Exchangeable Securities, which settled in the third quarter of fiscal 2011.

4) Reflects impact of RVI-related tax expense.

5) 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 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.

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.

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