DSW Inc. Reports Third Quarter 2018 Financial Results

COLUMBUS, Ohio, Dec. 11, 2018 /PRNewswire/ -- DSW Inc. (NYSE: DSW), one of North America's largest designers, producers and retailers of footwear and accessories, announced financial results for the three months ended November 3, 2018, compared to the three months ended October 28, 2017.

Chief Executive Officer, Roger Rawlins stated, "Our investments in merchandising, marketing and talent drove continued top line momentum, with comp growth across all businesses. Additionally, the nationwide roll-out of DSW kids drove the most successful back-to-school season in our history and our recently acquired Canadian business delivered the best results in the last five years."

"Our acquisition of Camuto Group brings powerful design and sourcing capabilities in-house and new streams of revenue from one of the leading lifestyle brands in fashion footwear. Integration efforts are on track, with supply chain and working capital improvements paving the way for a return to profitability. We have transformed our company to one of North America's largest footwear operators, with vertical product development expertise combined with a vast distribution network. This will accelerate market share growth by creating value for more customers and increasing our competitive differentiation," Mr. Rawlins added.

Third Quarter Operating Results

• Total revenue increased by 17.2% to $833 million, including $80.1 million from the consolidation of the Canadian retail business.
• Comparable sales increased 7.3% for the same 13-week periods ended November 3, 2018 and November 4, 2017. Comparable sales exclude results from the Canada Retail segment
• Reported gross profit, as a percent of sales, increased by 320 bps, due to favorable merchandise margin.
• Reported operating expenses, as a percent of sales, increased by 540 bps, driven by planned marketing and labor investments, lease exit costs and acquisition-related costs.
• Reported net income was $39.3 million, or $0.48 per diluted share, including pre-tax charges totaling $22.9 million, or $0.22 per diluted share, from transaction costs related to acquisition activity, and lease exit costs partially offset by a favorable adjustment in goodwill impairment resulting from a change in purchase accounting.
• Adjusted net income was $57.9 million, or $0.70 per diluted share, a 56% increase to last year. Adjusted EPS includes a loss of $0.02 per share from the wind down of operations for the Town Shoes banner.

Nine Months Operating Results

• Total revenue increased 12.2% to $2.3 billion, including $152.6 million from the consolidation of the Canadian retail business.
• Comparable sales increased 6.3% compared to last year's 1.0% decrease.
• Reported gross profit, as a percent of sales, increased by 220 bps, driven by favorable merchandise margin and business mix.
• Reported operating expenses, as a percent of sales, increased by 290 bps, due to planned marketing and labor investments, lease exit costs, acquisition-related costs and restructuring expenses.
• Reported net income was $25.3 million, or $0.31 per diluted share, including pre-tax charges totaling $121.3 million, or $1.41 per diluted share, related to acquisition activity, impairment charges, lease exit costs, restructuring expenses and foreign exchange loss.
• Adjusted net income was $140.3 million, or $1.72 per diluted share, a 51% increase to last year. Year-to-date Adjusted EPS includes a loss of $0.07 per share from the wind down of operations for the Town Shoes banner and Ebuys.

Third Quarter Balance Sheet Highlights

• Cash and investments totaled $294 million compared to $330 million last year.
• The Company ended the quarter with inventories of $624 million compared to $547 million last year. Excluding inventories from the Canadian acquisition, inventories per square foot increased by 10.4% and increased by 7.9% on a two-year basis, in line with the Company's two-year comparable sales growth of 6.9%.

Regular DividendDSW Inc.'s Board of Directors declared a quarterly cash dividend of $0.25 per share. The dividend will be paid on January 4, 2019 to shareholders of record at the close of business on December 21, 2018.

Fiscal 2018 Annual OutlookThe Company raised its full year outlook for Adjusted EPS in the range of $1.70 to $1.85 per diluted share, compared to its previous range of $1.60 to $1.75 per diluted share. Guidance does not include charges related to exit costs, restructuring or acquisition-related expenses or the impact of exited businesses. The Company noted the impact of the Camuto Group acquisition reflects the seasonality of the business and the timing of the integration process, which is expected to yield benefits starting in 2019.

Webcast and Conference CallThe Company is hosting a conference call today at 8:30 am Eastern Time. The conference will be broadcast live over the internet and can be accessed at http://dswinc.investorroom.com. For those unable to listen to the live broadcast, an archived version will be available at the same location until January 4, 2019. The teleconference will be available on replay and can be accessed by dialing 1-877-344-7529 and entering passcode 10126509.

About DSW Inc.DSW Inc. is one of North America's largest designers, producers and retailers of footwear and accessories. The company operates a portfolio of retail concepts in nearly 1,000 locations under the DSW Designer Shoe Warehouse®, Shoe Company®, Shoe Warehouse® and Town Shoes® brands and operates leased locations in the U.S. through its Affiliated Business Group. DSW Inc. designs and produces footwear and accessories through Camuto Group, a leading manufacturer selling in more than 5,400 doors worldwide. The Camuto Group owns licensing rights for the Jessica Simpson® footwear business, and footwear and handbag licenses for Lucky Brand® and Max Studio®. In partnership with a joint venture with Authentic Brands Group, DSW Inc. also owns a stake in Vince Camuto®, Louise et Cie®, Sole Society®, CC Corso Como®, Enzo Angiolini® and others. More information can be found at www.dswinc.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995Any statements in this release that are not historical facts, including the statements made in our "Fiscal 2018 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 growing our store base and digital demand; risks related to our acquisitions of Camuto Group and Town Shoes Limited ("TSL"), including the possibility that the anticipated benefits of the acquisitions are not realized when expected or at all; our ability to protect our reputation and to maintain the brands we license; maintaining strong relationships with our vendors, manufacturers and wholesale customers; our ability to anticipate and respond to fashion trends, consumer preferences and changing customer expectations; risks related to the loss or disruption of our distribution and/or fulfillment operations; continuation of agreements with and our reliance on the financial condition of Stein Mart; our ability to execute our strategies; risks related to international franchisees failing to perform under their obligations and/or not operating the franchised stores according to our standards; fluctuation of our comparable sales and quarterly financial performance; risks related to the loss or disruption of our information systems and data; our ability to prevent or mitigate breaches of our information security and the compromise of sensitive and confidential data; failure to retain our key executives or attract qualified new personnel; our reliance on our loyalty program and marketing to drive traffic, sales and customer loyalty; risks related to leases of our properties; our competitiveness with respect to style, price, brand availability and customer service; our reliance on foreign sources for merchandise and risks inherent to international trade, including escalating trade tensions between the U.S. and other countries; uncertainty related to future legislation, regulatory reform, policy changes, or interpretive guidance on existing legislation, including the impact of the Tax Cuts and Jobs Act; uncertain general economic conditions; risks related to holdings of cash and investments and access to liquidity; and fluctuations in foreign currency exchange rates. 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 Securities and Exchange Commission. 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.

Non-GAAP MeasuresIn addition to earnings per share and net income determined in accordance with accounting principles generally accepted in the United States ("GAAP"), for purposes of evaluating operating performance, the Company uses adjusted earnings per share and net income, which adjust for the effects of the lease exit and other termination costs; costs and charges associated with acquisition-related activity, including target acquisition efforts; restructuring expenses; amortization expense of intangible assets; the change in fair value of contingent consideration liability related to Ebuys; and foreign currency losses, including the reclassification from accumulated other comprehensive loss as a result of the TSL 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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SOURCE DSW Inc.