DSW Inc (DSW) Tops Q2 Earnings, Comps Fall; Stock Down

DSW Inc. (NYSE:DSW) , a branded footwear and accessories retailer, reported better-than-expected earnings and revenues for the second quarter of fiscal 2016 after missing on both fronts in the preceding quarter.

The company reported adjusted earnings per share of 35 cents per share, beating the Zacks Consensus Estimate of 29 cents. However, the company’s earnings declined 16.7% year over year. Revenues of $658.9 million also surpassed the Zacks Consensus Estimate of $656 million. Moreover, the top line increased 5.1% year over year.

Comparable-store sales (comps) dipped 1.2% compared with an increase of 1.8% in the year-ago quarter. Notably, comps have declined for two straight quarters back to back for the first time since 2009. Despite beating on both the top and bottom lines, the company’s shares declined 10.3% on Aug 30 due to comps worries.

Gross profit declined 2.1% to $186.9 million, while gross margin contracted 210 basis points (bps) to 28.4% due to decreased initial markup activity, higher markdowns and the addition of Ebuys. Operating profit also plunged 33.5% to $39.6 million, while operating margin decreased 350 bps to 6%.

Segment wise, the DSW segment’s revenues were up 1.9% to $603.9 million, while ABG segment’s revenues were up 0.3% to $35.4 million. Other revenues came in at $19.6 million.

In the reported quarter, the company opened 3 new stores and closed 1 store. As of Aug 30, 2016, DSW had 483 stores.

Financials

DSW ended the quarter with cash and cash equivalents of $62.3 million as against $151 million in the year-ago quarter. A sharp decline in cash and cash equivalents was primarily due to the company’s investment in Ebuys in the previous quarter and share repurchase activity in the previous year. Inventories came in at $556.2 million compared with $505.2 million a year ago.

The company’s total shareholders’ equity was $941.4 million as of Jul 30 30, 2016, compared with $1,065.7 million as of Aug 1, 2015. Capital expenditure for the quarter amounted to $26 million. The company announced a quarterly dividend of 20 cents per share, which is payable on Sep 30, 2016 to shareholders on record as of Sep 16, 2016. The company did not repurchase any shares in the reported quarter.

Guidance

DSW reiterated its fiscal 2016 guidance. The company continues to expect earnings per share in the range of $1.32–$1.42. Comparable sales are expected to decline in the low single-digit range. The Zacks Consensus Estimate for fiscal 2017 is currently pegged at $1.36.

Zacks Rank

DSW carries a Zacks Rank #2 (Buy). Some well-ranked stocks in the same industry include The Children's Place, Inc. (NASDAQ:PLCE) , Urban Outfitters Inc. (NASDAQ:URBN) and Tilly's, Inc. (NYSE:TLYS) . All these stocks sport a Zacks Rank #1 (Strong Buy).

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