DESIGNER BRANDS INC COLUMBUS, Ohio, Nov. 21, 2017 /PRNewswire/ -- DSW Inc. (NYSE: DSW), a leading branded footwear and accessories retailer, announced financial results for the three months ended October 28, 2017, compared to the three months ended October 29, 2016.
Roger Rawlins, Chief Executive Officer stated, "Much of our core business performed in-line with expectations this quarter, despite an unusually severe hurricane season which impacted comps and earnings. Additionally, cold weather related product struggled to gain the traction we had anticipated; however, tight inventory management protected our bottom line from excessive markdowns and we ended the quarter with inventories below last year. Our business model remains healthy, generating strong cash flow which allows us to invest in both organic and non-organic growth. We activated new customers, accelerated digital demand and continued to deliver concrete progress in many of our strategic priorities, such as our Power Stores, our new Lab Store and the expansion of DSW kids. Additionally, we are starting to test several new services with our new Rewards VIP program that will further differentiate the DSW brand."
"At Ebuys, we've moderated the long-term financial expectations and have reduced its carrying value on our balance sheet. However, we believe the business provides valuable expertise to manage end-of-season clearance through online marketplaces. The successful integration of this business will unlock future synergies across our brand portfolio," Mr. Rawlins concluded.
Third Quarter Operating Results
-- Sales increased 1.7% to $708.3 million.
-- Comparable sales decreased 0.4% with a negative impact of 50 to 60 bps
from hurricane disruption.
-- Reported gross profit decreased by 120 bps due to our market share
initiative, higher shipping expenses and costs related to the
integration of Ebuys.
-- Reported operating expenses, as a percent of sales, increased by 20 bps,
with higher technology and marketing expenses offset by lower overhead
costs.
-- Reported net income was $4.0 million, or $0.05 per diluted share,
including pre-tax charges totaling $52.7 million, or $0.40 per diluted
share, related to net non-cash impairment charges related to goodwill
and intangible assets, offset by a reduction in contingent consideration
related to the Company's acquisition of Ebuys.
-- Adjusted net income was $35.9 million, or $0.45 per diluted share,
including weather related impact of approximately $0.05 per diluted
share.
Goodwill and Intangible Assets Impairment
The Company updated its long term expectations for Ebuys based on its performance over the last eighteen months. Although Ebuys brings valuable proprietary capabilities to compete on digital marketplaces, the Company believes it is necessary to moderate the growth assumptions assumed at the time of the acquisition. As a result, the Company significantly reduced its future contingent liability while simultaneously impairing the carrying value of goodwill and intangible assets related to the original target price of the acquisition. The total net non-cash charges related to the impairment of Ebuys' goodwill and intangible assets was $52.7 million, or $0.40 per diluted share, and is not included in the Company's Adjusted results.
Nine Months Ended October 28, 2017 Operating Results
-- Sales increased 2.1% to $2.1 billion.
-- Comparable sales decreased 1.0% compared to last year's 1.6% decrease.
-- Reported gross profit decreased by 80 bps, driven by incremental
clearance activity and inventory reserves and distribution costs related
to the ongoing integration of Ebuys.
-- Reported operating expenses, as a percent of sales, improved by 10 bps
due to tighter expense management.
-- Reported net income was $55.6 million, or $0.69 per diluted share,
including pre-tax charges totaling $59.9 million, or $0.45 per diluted
share, related to acquisition and impairment costs, restructuring
expenses and foreign exchange loss.
-- Adjusted net income was $92.2 million, or $1.14 per diluted share.
Third Quarter Balance Sheet Highlights
-- Cash and investments totaled $330 million compared to $216 million in
the third quarter last year.
-- During the quarter, the Company acquired 0.5 million shares for $9.4
million and has $524 million remaining in its current share repurchase
program. Since 2013, the Company has returned to shareholders over $600
million in dividends and share repurchases.
-- Inventories were $547 million compared to $563 million for the same
period last year. Excluding Ebuys and Gordmans, inventories decreased 3%
on a cost per square foot basis.
Regular Dividend
DSW Inc.'s Board of Directors declared a quarterly cash dividend of $0.20 per share. The dividend will be paid on December 29, 2017 to shareholders of record at the close of business on December 15, 2017.
Fiscal 2017 Annual Outlook
The Company updated its full year outlook for adjusted earnings in the range of $1.40 to $1.45 per diluted share to reflect lower expectations for Ebuys and the impact of weather related disruptions this quarter. Guidance does not include net charges related to the impairment of goodwill and intangible assets.
Webcast and Conference Call
The Company is hosting a conference call today at 8:30 am 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 November 28, 2017. The teleconference will be available on replay and can be accessed by dialing 1-877-344-7529 and entering passcode 10114319.
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 November 21, 2017, DSW operates 514 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 351 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.
SEGMENT RESULTS
(unaudited)
Net sales by segment
Three months ended Nine months ended
October 28, 2017 October 29, 2016 % change October 28, 2017 October 29, 2016 % change
---------------- ---------------- -------- ---------------- ---------------- --------
(dollars in thousands)
DSW segment $654,587 $639,136 2.4% $1,907,753 $1,866,096 2.2%
ABG segment 31,059 36,154 (14.1)% 106,377 114,738 (7.3)%
Other 22,662 21,326 6.3% 65,689 55,993 17.3%
------ ------ ------ ------
DSW Inc. $708,308 $696,616 1.7% $2,079,819 $2,036,827 2.1%
======== ======== ========== ==========
Comparable sales change by reportable segment
Three months ended Nine months ended
October 28, 2017 October 29, 2016 October 28, 2017 October 29, 2016
---------------- ---------------- ---------------- ----------------
DSW segment (0.4)% (1.8)% (1.0)% (1.5)%
ABG segment 0.5% (4.6)% (0.5)% (3.1)%
DSW Inc. (0.4)% (2.0)% (1.0)% (1.6)%
Stores and square footage data
October 28, 2017 October 29, 2016
---------------- ----------------
DSW stores open, end of period 514 498
ABG stores open, end of period 351 396
DSW stores total square footage (in thousands) 10,534 10,273
Reported gross profit by segment
Three months ended Nine months ended
October 28, 2017 October 29, 2016 October 28, 2017 October 29, 2016
---------------- ---------------- ---------------- ----------------
DSW segment merchandise margin 44.0% 45.0% 43.7% 44.0%
Store occupancy expense (10.9) (10.8) (11.1) (11.1)
Distribution and fulfillment (2.2) (2.3) (2.2) (2.2)
expenses
DSW segment gross profit 30.9% 31.9% 30.4% 30.7%
==== ==== ==== ====
ABG segment merchandise margin 44.3% 43.5% 44.3% 44.1%
Store occupancy expense (20.2) (20.7) (20.6) (20.4)
Distribution and fulfillment (1.1) (1.1) (1.1) (1.1)
expenses
ABG segment gross profit 23.0% 21.7% 22.6% 22.6%
==== ==== ==== ====
Other segment merchandise margin 18.1% 27.7% 22.7% 31.6%
Marketplace fees (12.9) (12.4) (12.2) (11.8)
Fulfillment expenses (17.0) (15.5) (17.5) (13.0)
----- ----- ----- -----
Other segment gross profit(1) (11.8)% (0.2)% (7.0)% 6.8%
====== ===== ===== ===
Total Company gross profit 29.2% 30.4% 28.8% 29.6%
(1) Other segment gross profit for
the three and nine months ended
October 29, 2016 includes $0.5
million and $1.2 million,
respectively, 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, consumer preferences and changing customer expectations; risks related to the planned acquisition of Town Shoes; risks related to the loss or disruption of our distribution and/or fulfillment operations; continuation of agreements with and our reliance on 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 the loss or disruption of our information systems and data; our ability to prevent breaches of our information security and the compromise of sensitive and confidential 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 leases of our properties; risks related to prior and current acquisitions; risks related to future legislation, regulatory reform or policy changes; fluctuations in foreign currency exchange rates; and risks related to holdings of cash and investments and access to liquidity. 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
(unaudited and in thousands)
October 28, 2017 January 28, 2017 October 29, 2016
---------------- ---------------- ----------------
Assets
Cash and cash equivalents $149,485 $110,657 $60,962
Short-term investments 180,066 98,530 78,512
Accounts receivable, net 20,417 19,006 21,363
Inventories 546,553 499,995 562,701
Prepaid expenses and other current assets 25,445 31,078 24,579
------ ------ ------
Total current assets 921,966 759,266 748,117
------- ------- -------
Property and equipment, net 358,154 375,251 381,218
Long-term investments - 77,904 76,126
Goodwill 25,899 79,689 77,208
Deferred income taxes 35,284 14,934 21,103
Equity investment in Town Shoes 7,180 15,830 17,996
Note receivable from Town Shoes 60,249 53,121 50,579
Intangible assets 3,135 35,108 38,243
Other assets 19,711 17,373 21,325
------ ------ ------
Total assets $1,431,578 $1,428,476 $1,431,915
========== ========== ==========
Liabilities and shareholders' equity
Accounts payable $194,313 $186,271 $161,262
Accrued expenses 141,990 130,334 143,653
------- ------- -------
Total current liabilities 336,303 316,605 304,915
------- ------- -------
Non-current liabilities 146,714 174,383 203,577
Total shareholders' equity 948,561 937,488 923,423
------- ------- -------
Total liabilities and shareholders' equity $1,431,578 $1,428,476 $1,431,915
========== ========== ==========
DSW INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share amounts)
Three months ended Nine months ended
October 28, October 29, October 28, October 29,
2017 2016 2017 2016
---- ---- ---- ----
Net sales $708,308 $696,616 $2,079,819 $2,036,827
Cost of sales (501,591) (484,836) (1,480,901) (1,433,829)
Operating expenses (151,772) (147,412) (454,093) (446,696)
Goodwill and intangible assets impairment charges (82,701) - (82,701) -
Change in fair value of contingent consideration liability 31,178 (1,469) 28,926 (5,080)
------ ------ ------
Operating profit 3,422 62,899 91,050 151,222
Interest income, net 602 482 1,824 1,626
Non-operating income (expense) (121) 80 (2,304) 344
---- --- ------ ---
Income before income taxes and income from Town 3,903 63,461 90,570 153,192
Shoes
Income tax provision (1,496) (25,626) (35,510) (60,420)
Income from Town Shoes 1,630 1,128 543 1,237
Net income $4,037 $38,963 $55,603 $94,009
====== ======= ======= =======
Diluted earnings per share $0.05 $0.47 $0.69 $1.14
Weighted average diluted shares 80,647 82,537 80,699 82,643
DSW INC.
NON-GAAP RECONCILIATION
(unaudited and in thousands, except per share amounts)
Three months ended Nine months ended
October 28, October 29, October 28, October 29,
2017 2016 2017 2016
---- ---- ---- ----
Reported net income $4,037 $38,963 $55,603 $94,009
------ ------- ------- -------
Adjustments:
Related to the Ebuys Acquisition:
Goodwill and intangible assets impairment charges 82,701 - 82,701 -
Inventory step-up costs - 532 - 1,225
Transaction costs - 4 - 2,288
Amortization of intangible assets 1,019 1,072 3,055 2,902
Change in fair value of contingent consideration (31,178) 1,469 (28,926) 5,080
liability
Restructuring expenses - 1,349 829 4,075
Town acquisition costs 77 - 77 -
Foreign currency loss 48 - 2,209 -
--- --- ----- ---
Total adjustments, pre-tax 52,667 4,426 59,945 15,570
Tax effect of adjustments (20,768) (1,667) (23,310) (6,004)
------- ------ ------- ------
Total adjustments, after tax 31,899 2,759 36,635 9,566
------ ----- ------ -----
Adjusted net income $35,936 $41,722 $92,238 $103,575
======= ======= ======= ========
Reported diluted earnings per share $0.05 $0.47 $0.69 $1.14
Adjusted diluted earnings per share $0.45 $0.51 $1.14 $1.26
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 goodwill and intangible assets impairment charges, acquisition costs, the amortization expense of acquired intangible assets and the change in fair value of contingent consideration liability related to the acquisition of Ebuys, restructuring costs related to the Company's expense management initiative, foreign exchange losses on Canadian dollar investments, and costs associated with the planned acquisition of Town Shoes. 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.
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SOURCE DSW Inc.
