DSW Manages to Top Profit Forecasts, But Sales Fall Short

Helped by better expense controls and inventory management, DSW Inc. today produced significant fourth-quarter profit growth, but its sales remained soft.

As of 10:15 a.m., investors cheered the firm’s uptick in profitability, sending DSW’s stock climbing almost 5 percent, to $20.80.

The off-price footwear retailer said its Q4 net income soared 160 percent year-over-year, to $30.5 million, or 38 cents per diluted share. Adjusted net income was $16.5 million, or 20 cents per diluted share, an increase of 43 percent over last year, and well above analysts’ bets for diluted earnings per share of 16 cents.

Sales improved 0.4 percent, to $674.6 million — including a $27.9 million contribution from Ebuys, which the firm acquired last year — but market watchers had expected the company’s sales to reach $691.5 million. Comparable sales decreased 7 percent.

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“Our fourth quarter continued our return to year-over-year profitability growth, with top-line results that met our comp guidance,” CEO Roger Rawlins said in a release. “Inventory management and a product-focused campaign drove significantly higher gross margin, which, coupled with better expense control, resulted in a 22 percent increase in adjusted earnings per share this fall season.”

The company’s full-year sales increased 3.5 percent, to $2.7 billion, including $83.9 million from the company’s acquisition of Ebuys.

Comparable sales decreased by 3 percent and reported net income was $124.5 million, or $1.52 per diluted share. Adjusted net income was $120.1 million, or $1.46 per diluted share, a 5 percent decrease from last year.

“After making fundamental changes to our core business last year, we are laser-focused on driving comp growth through our merchandise and allocation initiatives and the elevation of our customer’s digital experience,” Rawlins said. “Furthermore, we are building a foundation to support the growth of Ebuys and Town Shoes and to leverage synergies across all of our retail brands.”

Looking ahead, the company expects full-year revenue growth of 3 to 5 percent, with comparable sales to range from a flat to low single digit decline compared to the prior year.

Full-year adjusted EPS is expected to range between $1.45 to $1.55 per diluted share.