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Form 8-K DSW Inc. For: May 24

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May 24, 2016 8:53 AM EDT


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
FORM 8-K
CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 24, 2016 (May 24, 2016)
DSW Inc.

(Exact name of registrant as specified in its charter)
 
 
 
 
 
Ohio
 
001-32545
 
31-0746639
(State or other Jurisdiction of Incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
 
 
 
810 DSW Drive, Columbus, Ohio
 
43219
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (614) 237-7100
 
 
(Former name or former address if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))







ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On May 24, 2016, the Company issued a press release regarding its consolidated financial results for the first quarter ended April 30, 2016. A copy of the press release announcing these financial results is attached as Exhibit 99.1 hereto and incorporated by reference herein.
Pursuant to General Instruction B.2 of Current Report on Form 8-K, the information in this Item 2.02 is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Furthermore, the information in this Item 2.02 shall not be deemed to be incorporated by reference into the filings of the Company under the Securities Act of 1933, as amended.

ITEM 8.01 OTHER EVENTS
The Company's May 24, 2016 press release further announced that the Company's Board of Directors declared a dividend of $0.20 per share, to be paid on June 30, 2016 to shareholders of record at the close of business on June 16, 2016. Subject to the note relating to the press release contained in Item 2.02 of this Current Report on Form 8-K, the press release is attached as Exhibit 99.1 hereto and is incorporated by reference herein.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(d) Exhibits.
 
 
 
Exhibit Number

 
Description
 
 
 
99.1

 
Press Release dated May 24, 2016































Signature  
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.  
 
 
 
 
DSW Inc.
 
 
 
By:
/s/ Mary Meixelsperger
 
 
 
 
Mary Meixelsperger

 
 
 
 
Senior Vice President and Chief Financial Officer
 
 
 
 
 
Date:
May 24, 2016
 
 
 





DSW Inc. Reports First Quarter 2016 Financial Results

•
First quarter sales increase 3.9% to $681 million; comparable sales decrease 1.6%
•
Reported EPS of $0.36 per share, including purchase accounting, transaction costs and change in fair value of contingent consideration associated with the acquisition of Ebuys, Inc. ("Ebuys")
•
Adjusted EPS of $0.40 per share
•
Full year Adjusted EPS guidance of $1.32 to $1.42 per share
•
Board of Directors approves a quarterly dividend of $0.20 per share

COLUMBUS, Ohio, May 24, 2016 - DSW Inc. (NYSE: DSW), a leading branded footwear and accessories retailer, announced financial results for the thirteen week period ended April 30, 2016, which compares to the thirteen week period ended May 2, 2015.

Roger Rawlins, Chief Executive Officer stated, "We have reduced our sales and earnings guidance to reflect the current trend of our business in a challenging retail environment. This is the prudent action to take so that inventory, expenses and capital investments are aligned to maximize profitability and positioned to expand earnings as our trend improves.”

Mr. Rawlins also stated, “Over the past three years, we have invested heavily in technology, stores, marketing and support services. These investments have driven sales, but we haven’t grown our bottom line. We have begun an assessment of our cost structure to improve earnings and reinforce our competitive position in a rapidly changing environment.”

First Quarter Operating Results
•
Reported net income was $30.0 million, or $0.36 per diluted share, including pre-tax charges of $4.5 million or $0.04 per share from purchase accounting, transaction costs and fair market value accounting charges resulting from the acquisition of Ebuys.
•
Adjusted net income was $32.8 million, or $0.40 per diluted share, excluding acquisition related costs.
•
Sales increased 3.9% to $681 million, including $15.1 million from Ebuys.
•
Comparable sales decreased by 1.6% compared to last year's increase of 5.1%.
•
Adjusted gross profit decreased by 250 bps due to higher markdowns and the addition of Ebuys.
•
Adjusted operating expense rate deleveraged by 90 bps due to increased marketing spend, technology investments and higher corporate expenses.
•
Non-operating income last year included a foreign exchange benefit of $3.3 million or $0.02 per share related to the Company's Canadian dollar holdings.
•
Tax rate increased by 80 bps due primarily to a favorable discrete item last year.





First Quarter Balance Sheet Highlights
•
Cash, short-term and long-term investments totaled $238 million compared to $456 million in the first quarter last year. The lower cash balance reflects the Company's share repurchase activity totaling $180 million in 2015 and funding of its acquisition of Ebuys totaling $60.4 million in March 2016.
•
Inventories were $563 million compared to $512 million at the end of the first quarter last year. Excluding Ebuys inventory of $27 million, total inventories increased by 4.7%. On a cost per square foot basis, DSW inventories increased by 0.6%.


Regular Dividend
DSW Inc.'s Board of Directors declared a quarterly cash dividend payment of $0.20 per share. The dividend will be paid on June 30, 2016 to shareholders of record at the close of business on June 16, 2016.


Fiscal 2016 Annual Outlook
The Company revised its full year earnings guidance to $1.32 to $1.42 per share, reflecting expectations for softer sales for the balance of the year in a challenging retail environment. Guidance does not include the impact of purchase price accounting, transaction costs and fair market value accounting for Ebuys contingent consideration of approximately $0.11 to $0.13 per share. This assumes approximately 6% revenue growth driven by a comparable sales decline in the 1% to 2% range.

The table below compares changes to the Company's updated guidance. Adjusted EPS excludes transaction costs, purchase accounting and fair market value accounting related to Ebuys.

 
 
 
Previous Guidance
 
Updated Guidance
Comparable sales
 
1% - 2% growth
 
1% - 2% decline
Revenue growth
 
8% - 10%
 
6% - 7%
Gross margin
 
flattish
 
decline 100 to 150 bps
Operating expense growth
 
low teens
 
7% - 8%
Tax rate
 
 approx. 39%
 
approx. 39%
Shares outstanding
 
83 million shares
 
83 million shares
Adjusted Earnings per share
 
$1.54 to $1.64/share
 
$1.32 to $1.42/share













Webcast and Conference Call
To hear the Company's live earnings conference call, log on to http://www.dswinc.com/ today at 8:30 a.m. Eastern Time, or call 1-888-317-6003 in the U.S. or 1-412-317-6061 outside the U.S. using passcode 0013011 approximately ten minutes prior to the start of the call. A telephone replay of this call will be available until 5:00 p.m. Eastern Time on June 1, 2016 and can be accessed by dialing 1-877-344-7529 in the U.S. or 1-412-317-0088 outside the U.S. and using passcode 10086079. An audio replay of the conference call, as well as additional financial information, will also be available at http://www.dswinc.com.


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 May 24, 2016, DSW operates 480 stores in 42 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 Inc. also supplies footwear to 385 leased locations in the United States under the Affiliated Business Group. DSW Inc. also owns Ebuys, 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 Inc., visit http://www.dswinc.com. Follow DSW on Twitter at http://twitter.com/DSWShoeLovers and Facebook at http://www.facebook.com/DSW.

































DSW INC.
Q1 2016 SEGMENT RESULTS

Net sales by segment
 
Thirteen weeks ended
 
April 30, 2016
 
May 2, 2015
 
% change
 
 
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
 
 
DSW segment
$
623,032

 
$
612,211

 
1.8
 %
ABG segment
43,139

 
43,275

 
(0.3
)%
Other
15,096

 
—

 
—
 %
DSW Inc.
$
681,267

 
$
655,486

 
3.9
 %

Comparable sales change by reportable segment
 
Thirteen weeks ended
 
April 30, 2016
 
May 2, 2015
DSW segment
(1.4)%
 
5.1%
ABG segment
(3.4)%
 
5.0%
DSW Inc.
(1.6)%
 
5.1%

Gross profit by segment
 
Thirteen weeks ended
 
April 30, 2016
 
May 2, 2015
DSW segment
30.7
%
 
33.3
%
ABG segment
25.1
%
 
20.8
%
Other
14.1
%
 
—
%
DSW Inc.
30.0
%
 
32.5
%

Stores and square footage data
 
As of
 
April 30, 2016
 
May 2, 2015
DSW stores open, end of period
478

 
449

DSW stores total square footage (in thousands)
9,955

 
9,550






Gross profit by segment
 
Thirteen weeks ended
 
April 30, 2016
 
May 2, 2015
DSW segment gross profit
 
30.7
%
 
 
33.3
%
DSW segment merchandise margin
43.9
%
 
 
45.8
%
 
Store occupancy expense
10.9
%
 
 
10.4
%
 
Distribution and fulfillment expense
2.3
%
 
 
2.1
%
 
 
 
 
 
 
 
ABG segment gross profit
 
25.1
%
 
 
20.8
%
ABG segment merchandise margin
46.6
%
 
 
46.1
%
 
Store occupancy expense
20.4
%
 
 
24.2
%
 
Distribution and fulfillment expense
1.1
%
 
 
1.1
%
 
 
 
 
 
 
 
Other gross profit
 
14.1
%
 
 
—
%
Other merchandise margin
34.6
%
 
 
—
%
 
Marketplace fees
11.0
%
 
 
—
%
 
Distribution and fulfillment expense
9.5
%
 
 
—
%
 





















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 2016 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 opening and operating new stores on a timely and profitable basis; maintaining strong relationships with our vendors; our ability to anticipate and respond to fashion trends; our success in meeting customer expectations; disruption of our distribution and/or fulfillment operations; continuation of supply agreements and the financial condition of our affiliated business partners; fluctuation of our comparable sales and quarterly financial performance; risks related to our information systems and 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 our handling of sensitive and confidential data; risks related to leases of our properties; risks related to prior and current acquisitions; foreign currency exchange risk; and risks related to our cash and investments. 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 SEC. 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
(In thousands)
(Unaudited)


 
April 30, 2016
 
January 30, 2016
 
May 2, 2015
Assets
 
 
 
 
 
Cash and equivalents
$
59,462

 
$
32,495

 
$
206,868

Short-term investments
97,612

 
226,027

 
128,705

Accounts receivable, net
15,297

 
15,464

 
24,181

Inventories
563,317

 
484,236

 
512,096

Prepaid expenses and other current assets
32,166

 
37,446

 
46,794

Total current assets
767,854

 
795,668

 
918,644

 
 
 
 
 
 
Property and equipment, net
373,979

 
374,241

 
346,912

Long-term investments
80,456

 
71,953

 
120,724

Goodwill
80,684

 
25,899

 
25,899

Deferred income taxes
21,217

 
21,815

 
31,446

Investment in Town Shoes
18,389

 
21,188

 
22,952

Note receivable from Town Shoes
50,618

 
44,170

 
46,686

Intangible assets
40,614

 
—

 
—

Other assets
23,179

 
14,175

 
8,697

Total assets
$
1,456,990

 
$
1,369,109

 
$
1,521,960

 
 
 
 
 
 
Liabilities and shareholders' equity
 
 
 
 
 
Accounts payable
$
197,519

 
$
215,626

 
$
195,406

Accrued expenses
125,766

 
107,800

 
136,374

Total current liabilities
323,285

 
323,426

 
331,780

 
 
 
 
 
 
Non-current and contingent liabilities
200,138

 
140,759

 
141,393

Total shareholders' equity
933,567

 
904,924

 
1,048,787

Total liabilities and shareholders' equity
$
1,456,990

 
$
1,369,109

 
$
1,521,960






















DSW INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)


 
 
Thirteen weeks ended
 
 
April 30, 2016
 
May 2, 2015
Net sales
 
$
681,267

 
$
655,486

Cost of sales
 
(476,910
)
 
(442,428
)
   Gross profit
 
204,357

 
213,058

Operating expenses
 
(154,196
)
 
(139,486
)
Change in fair value of contingent consideration
 
(1,445
)
 
—

   Operating profit
 
48,716

 
73,572

Interest income, net
 
521

 
920

Non-operating income
 
164

 
3,312

   Income before income taxes and loss from Town Shoes
 
49,401

 
77,804

Income tax provision
 
(19,078
)
 
(29,096
)
Loss from Town Shoes
 
(309
)
 
(1,342
)
   Net income
 
$
30,014

 
$
47,366

 
 
 
 
 
Diluted shares used in per share calculations
 
82,705

 
89,624

 
 
 
 
 
Earnings per share
 
$
0.36

 
$
0.53


































DSW INC.
RECONCILIATION OF ADJUSTED RESULTS
(In thousands, except per share amounts)
(Unaudited)


 
Thirteen weeks ended April 30, 2016
 
Pre-tax
 
Tax effected - net income
 
Diluted earnings per share
Reported net income
 
 
$
30,014

 
$
0.36

 
 
 
 
 
 
Adjustments:
 
 
 
 
 
Transactions costs
$
2,157

 
1,335

(1)
0.02

Change in fair value of contingent consideration
1,445

 
870

(2)
0.01

Inventory step-up
160

 
100

(3)
—

Amortization of intangible assets
732

 
440

(3)
0.01

 
 
 
 
 
 
Adjusted net income


 
$
32,759

 
$
0.40


(1) Relates to costs associated with the purchase of Ebuys.

(2) The Company agreed to pay additional amounts to Ebuys contingent upon achievement of certain negotiated goals. The Company has recognized a liability for these contingent obligations based on their estimated fair value at the date of acquisition with any differences between the acquisition-date fair value and the ultimate settlement of the obligations being recognized as an adjustment to income from operations.

(3) Reflects incremental expenses related to the purchase accounting write-up of Ebuys tangible and intangible assets to fair market value. The amounts include purchase accounting adjustments related to the step-up of the value of Ebuys' inventory and $41.3 million for other intangibles.

Non-GAAP Measures

In addition to earnings per share and net income determined in accordance with generally accepted accounting principles ("GAAP"), for purposes of evaluating operating performance, the Company uses adjusted measurements, which adjusts for the effects of acquisition accounting adjustments and costs incurred in connection with the Ebuys acquisition. 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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