DSW (DSW) Gains On Q3 Earnings & Sales Beat, Higher View

Shares of DSW Inc. (NYSE:DSW) soared 8.1% during the trading session on Dec 11, driven by robust third-quarter fiscal 2018 results and an upbeat outlook. Results were backed by robust earnings and rise in comparable sales (comps). Notably, this Zacks Rank #3 (Hold) company has rallied 17.6% in a year’s time against the industry’s decline of 11.1%.

The company reported its fourth straight quarter of positive earnings surprise, wherein adjusted earnings of 70 cents a share beat the Zacks Consensus Estimate of 53 cents. Moreover, the figure was up 56% from the year-ago quarter, buoyed by increased top line.

DSW generated total revenues of $833 million, up 17.2% from the year-ago period, which surpassed the Zacks Consensus Estimate of $788.4 million. The top line was fueled by significant growth in comps, especially in the U.S. Retail Segment. Notably, comps for the quarter grew 7.3%, against a decline of 0.4% in the year-ago quarter.

In the quarter under review, gross margin expanded 320 basis points to approximately 32.6%, mainly due to higher merchandise margin.

DSW Inc. Price, Consensus and EPS Surprise

Segment Details

Net sales came in at $831.7 million in the quarter, up 17.2% from the year-ago period. U.S. Retail segment (previously named DSW segment) revenues climbed 10% year over year to $721.7 million, primarily owing to a 7.3% increase in comps. Sales in Canada Retail segment was $80.1 million. Other segment revenues declined 44.4% to $29.9 million in the reported quarter.

Also, Franchise and other revenue marginally fell 0.5% to $1.3 million.

Store Update

During the quarter under review, the company operated 978 stores. In the United States, it has 519 DSW and 287 ABG outlets. It currently has 111 Shoe Warehouse stores, 27 DSW Designer Shoe warehouse outlets and 34 Town Shoe stores. Further, the company intends to open three to six stores this year.

Other Financial Details

DSW ended third-quarter fiscal 2018 with cash and cash equivalents of $222.4 million and total equity of $942.4 million. Moreover, it declared a quarterly dividend of 25 cents per share payable on Jan 4, 2019, as of record on Dec 21, 2018.

Also, management incurred capital expenditures of $15 million in the quarter, which includes $2 million in Canada retail business.

Outlook

DSW, which recently acquired Camuto Group, updated its fiscal 2018 guidance for the second straight quarter. It now anticipates adjusted earnings of $1.70-$1.85 per share, up from the previous view of $1.60-$1.75. Further, DSW revenues are expected to increase 12-14%, up from the prior forecast of 6-9%. With this, the company will soon become a $3-billion retail business in 2018.

Comps are projected to rise in the mid to high-single-digit range compared with low to mid-single-digit range expected earlier. Capital expenditure is expected to be $80 million in fiscal 2018.

Also, management provided fourth-quarter fiscal 2018 view. The company anticipates bottom line to range between a loss of 9 cents to earnings of 6 cents per share. Although comps are expected to remain strong, results might be affected by calendar shift.

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