DSW Delivers Its Best Comps in Two Years

Markets Motley Fool

DSW (NYSE: DSW) released better-than-expected second-quarter 2017 results on Tuesday morning, highlighting its first positive comparable-sales performance since 2015 and a big new share-repurchase program. DSW shares were up nearly 18% today, so let's tighten our laces and get a closer look at how Designer Shoe Warehouse ended the first half, as well as what investors can expect from the footwear retailer going forward.

Continue Reading Below

DSW results: The raw numbers

Metric

Fiscal Q2 2017*

Fiscal Q2 2016

Year-Over-Year Growth

Revenue

$680.4 million

$658.9 million

3.3%

GAAP net income

$28.6 million

$25.0

14.2%

GAAP earnings per share (diluted)

$0.35

$0.30

16.7%

What happened with DSW this quarter?

  • On an adjusted basis -- which notably excludes restructuring costs and expenses related to DSW's acquisition of Ebuys last year -- adjusted net income was $30.6 million, or $0.38 per diluted share, up from $29.1 million, or $0.35 per share in the same year-ago period.
  • Both ranges were well ahead of investors' expectations for adjusted earnings of $0.29 per share on revenue of $666.1 million.
  • Comparable-store sales climbed 0.6% year over year, marking DSW's first positive comps result since the second quarter of 2015.
  • Gross profit increased 50 basis points year over year, thanks to lower markdowns and favorable sourcing.
  • Operating margin improved by 10 basis points year over year, as lower overhead costs more than offset higher selling and technology expenses.
  • DSW's board approved a new $500 million share-repurchase authorization, which is incremental to the $33 million remaining on its previous authorization.

What management had to say

Continue Reading Below

DSW CEO Roger Rawlins stated:

We were pleased to report our first positive comp quarter since 2015. This resulted in a healthy increase in regular priced sales and improvements across all selling metrics. With our mission to inspire self-expression, these results demonstrate how our strategic direction is resonating with the DSW customer. We are deepening our customer connection with unique product and meaningful experiences that will define Designer Shoe Warehouse as the trusted authority for all things footwear. The current retail consolidation provides significant opportunity to acquire market share, and in the next 12 months, we will unveil several exciting new initiatives that will inspire emotional loyalty with the DSW brand. At the same time, we are building the infrastructure to mobilize inventory across all of our brands and enable us to better serve our customers. We are confident these initiatives will grow sales, cash flow and profitability long-term.

Looking forward

Looking ahead, DSW reiterated its full-year guidance for earnings per share in the range of $1.45 to $1.55 -- above the $1.44 per share Wall Street had been modeling going into this report. 

This shouldn't be entirely surprising considering that Rawlins noted last quarter that, after a tough start to the year, sales trends had begun to improve, with comps turning positive in April. But after peers like Foot Locker only recently posted painful quarterly results of their own last week, it was also hard to blame the market for worrying that weakness might carry over to DSW's business. In the end, those concerns proved to be unfounded, and investors responded in kind today.

10 stocks we like better than DSW
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and DSW wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 1, 2017

Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends DSW. The Motley Fool has a disclosure policy.