DSW's Q1 Earnings & Revs Miss, Fall Y/Y - Analyst Blog

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DSW Inc. ( DSW ) posted first-quarter fiscal 2014 adjusted earnings of 42 cents per share that fell short of the Zacks Consensus Estimate of 48 cents and slumped 16% from the year-ago period. However, on a GAAP basis, earnings per share surged 10.5% year over year.

Owing to an intense promotional retail environment and an erratic weather, the top line slipped 0.4% to 598.9 million, with comparable-store sales (comps) declining 3.7% year over year. Sales also lagged the Zacks Consensus Estimate of $636.0 million.

However, on the brighter side, gross profit advanced 2.7% to $188.0 million with the gross margin expanding 100 basis points (bps) to 31.4%. Operating profit also escalated 12.8% to $61.3 million with the operating margin expanding 120 bps to 10.2%.

Financials

DSW ended the year with cash, short- and long-term investments of $548.2 million, as against $429.7 million last year. Inventories, on a cost per square foot basis, came in at $420.0 million, compared with $395.3 million last year. The company's total shareholders' equity stood at $1,023.3 million as of May 3, 2014, compared with $893.4 million as of May 4, 2013.

Further, a day before the earnings release, management declared a quarterly cash dividend of 18.75 cents a share, payable on Jun 30, 2014, to shareholders of record as on Jun 20.

Encouraging Fallouts

Although DSW faced a challenging first quarter, the company implemented effective pricing for its main items and also managed inventories well. Further, the company's focus on enhancing its assortments and omni-channel operations is likely to provide it a competitive edge.

Moreover, the company is making significant investments to strengthen its international footprint, which is evident from its latest deal with Town Shoes of Canada. Town Shoes is owned primarily by Alberta Investment Management Corporation (AIMCo) and private equity firm Callisto Capital.

DSW closed this acquisition on May 12 and paid $68.7 million for a 49.2% stake in Town Shoes. This buyout will provide DSW with a representation status on the board of directors as well as a 50% voting control in the company.

DSW was attempting to foray in Canada for quite some time and Town Shoes appears to be a perfect fit. Spread over 182 locations with revenues of CAD $291 million for fiscal year ending Jan 2014, Town Shoes has emerged as a strategic option for its access to Canadian lands. With this acquisition, DSW will have an operating base in Canada that will help in expanding its brand across the country.

DSW expects the acquisition to bear fruit in the latter half of this fiscal and drive its top and bottom-lines.

Guidance for Fiscal 2014

This branded footwear retailer envisions earnings for fiscal 2014 to lie in the band of $1.45-$1.60 per share. The Zacks Consensus Estimate for the fiscal is currently pegged at $1.89 a share, which makes it susceptible to downward revision.

Additionally, the company anticipates comps to decline by a low-single digit rate while expecting adjusted sales to improve at the same rate.

Other Stocks to Consider

This Ohio-based retailer currently holds a Zacks Rank #4 (Sell). Some better-ranked stocks in the same industry include Citi Trends, Inc. ( CTRN ), American Apparel, Inc. ( APP ) and Foot Locker, Inc. ( FL ). While Citi Trends carries a Zacks Rank #1 (Strong Buy), American Apparel and Foot Locker carry a Zacks Rank #2 (Buy) each.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: APP , CTRN , DSW , FL

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