Wall Street rewards DSW for record sales, earnings

Shares of DSW closed up 20.2 percent Tuesday after the Columbus-based shoe retailer reported record sales and earnings for the second quarter.

Comparable-store sales, a key indicator of a retailer’s health, grew by 9.7 percent.

DSW reported sales of $795.3 million, beating Wall Street estimates by $105.9 million. Excluding costs primarily related to the closing of its Ebuys business and completing the acquisition of its Canadian business, DSW reported earnings of 63 cents per share, beating analyst expectations by 17 cents. Without the exclusions, DSW lost 48 cents per share.

For the first six months of the year, sales increased to $1.5 billion, putting the company on track to full-year sales of $3 billion for the first time in DSW’s history.

Wall Street was wowed by the performance.

“In all, we were impressed with the (comparable store sales) and what appears to be Shares of DSW rose 20.2 percent Tuesday on news that the shoe retailer reported record sales of $795.3 million in the second quarter, beating estimates by $105.9 million.

stronger underlying margins,” Wedbush analysts Christopher Svezia and Paul Nawalany told trade publication Retail Dive.

“That said, we still have questions around the outlook and the ‘Town’ integration.”

The analysts’ comment referred to DSW’s acquisition of the Canadian brands Shoe Company, Shoe Warehouse and Town Shoes in 2014. DSW recently decided to close Town Shoes, the

smallest of the three.

“”he decision to exit the Town banner was difficult, given its heritage, but losses were close to $10 million dollars annually,” CEO Roger Rawlins said.

But DSW learned some things from its Canadian acquisition, too.

For example, the backto-school season occurs at a time when, in the past, DSW had experienced something of a lull in sales.

But the Canadian business offers examples of “how big that business can be,” said Jared Poff, DSW’s chief financial officer. Unlike DSW’s U.S. business, which has only recently completed putting children’s sections in its stores, the Canadian retailer has long been a player in kids’ shoes and has reported robust sales during the back-to-school season.

“(So) far, we haven’t seen the top,” Poff said.

Wall Street analysts had recently been wary of DSW’s upgraded loyalty program, speculating that the free shipping would affect profit margins. Analysts during the earnings conference call also repeatedly raised concerns about DSW’s recent higher inventory levels in its stores.

But Rawlins dismissed the concerns.

Free shipping “will not dilute (profit) margins,” he said. “What it does is bring more people into the game.”

The inventory levels have been increased for a very specific purpose, too, Rawlins said.

“When we walk into our (stores) and it’s 65 or 70 percent of capacity, that means 30 percent of that box has no product,” he said, leaving the stores looking somewhat empty.

“That’s not the image we want to convey.”

Based on the results for the year to date, DSW raised its expectations for the year to sales of between $2.97 billion to $3.05 billion, up from Wall Street expectations of $2.79 billion, and earnings of between $1.60 to $1.75 per share, up from analyst predictions of $1.61 per share.

Rawlins told analysts during the conference call that the Easton DSW store will soon be outfitted with the same features now offered at the Polaris store.

Changes include a W Nail Bar; a Sole Lounge concierge area for easy pickups, returns and shoe and handbag repairs; and Fit Step Pro custom insole shop. The additions to the Easton store are expected to be complete in September.