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DSW Inc (DSW) Plunges 11% on Q1 Earnings & Revenue Miss

Zacks Equity Research

Shares of DSW Inc. DSW plunged more than 11% yesterday after the company posted lower-than-expected financial numbers for first-quarter fiscal 2016. Quarterly earnings per share from continuing operations of 40 cents missed the Zacks Consensus Estimate of 46 cents and also declined 21.6% year over year. However, revenues of $681.3 million fell short of the Zacks Consensus Estimate of $697 million. Nonetheless, the top line increased 4% year over year.

Comparable-store sales (comps) dipped 1.6% year over year compared with an increase of 5.1% in the year-ago quarter.

Gross profit advanced 4.1% to $204.4 million, while gross margin contracted 250 basis points (bps) to 30% due to an increased markdown activity and the addition of Ebuys. Operating profit also plunged 33.8% to $48.7 million, while operating margin decreased 400 bps to 7.2%.

Segment wise, the DSW segment’s revenues were up 1.8% to $623 million, while ABG segment’s revenues were down 0.3% to $43.1 million. Other revenues came in at $15.1 million.

In the reported quarter, the company opened 10 new stores. As of Apr 30, 2016, DSW had 478 stores.

Financials

DSW ended the year with cash, short- and long-term investments of $157.1 million as against $335.6 million last year. Inventories came in at $563.3 million compared with $512.1 million a year ago. The company’s total shareholders’ equity was $933.6 million as of Apr 30, 2016, compared with $1,048.8 million as of May 2, 2015.

Capital expenditure for the quarter amounted to $18 million. The company announced a quarterly dividend of 20 cents per share, which is payable on Jun 30, 2016 to shareholders on record as of Jun 16, 2016.

This Ohio-based retailer currently carries a Zacks Rank #3 (Hold).

Guidance

DSW has trimmed its guidance for the fiscal 2016. The company now expects earnings per share in the range of $1.32–$1.42 as against the previous guidance of $1.54–$1.64. The company now expects revenue growth in the range of 6–7% compared with the previous estimate of 8–10% growth. Comparable sales are expected to decline in the range of 1% to 2%. Gross margin is expected to decline between 100 bps and 150 bps.  Previously, the gross margin was expected to remain flat.

Stocks to Consider

Some better-ranked stocks in the same industry include The Children's Place, Inc. PLCE, Central Garden & Pet Company CENT and Destination XL Group, Inc. DXLG. The Children's Place and Central Garden & Pet sport a Zacks Rank #1 (Strong Buy), while Destination XL Group has a Zacks Rank #2 (Buy).

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