Designer Brands Investor Center

COLUMBUS, Ohio, Nov. 21, 2017 /PRNewswire/ -- DSW Inc. (NYSE: DSW), a leading branded footwear and accessories retailer, announced financial results for the three months ended October 28, 2017, compared to the three months ended October 29, 2016.

Roger Rawlins, Chief Executive Officer stated, "Much of our core business performed in-line with expectations this quarter, despite an unusually severe hurricane season which impacted comps and earnings. Additionally, cold weather related product struggled to gain the traction we had anticipated; however, tight inventory management protected our bottom line from excessive markdowns and we ended the quarter with inventories below last year. Our business model remains healthy, generating strong cash flow which allows us to invest in both organic and non-organic growth. We activated new customers, accelerated digital demand and continued to deliver concrete progress in many of our strategic priorities, such as our Power Stores, our new Lab Store and the expansion of DSW kids. Additionally, we are starting to test several new services with our new Rewards VIP program that will further differentiate the DSW brand."

"At Ebuys, we've moderated the long-term financial expectations and have reduced its carrying value on our balance sheet. However, we believe the business provides valuable expertise to manage end-of-season clearance through online marketplaces. The successful integration of this business will unlock future synergies across our brand portfolio," Mr. Rawlins concluded.

Third Quarter Operating Results

• Sales increased 1.7% to $708.3 million.
• Comparable sales decreased 0.4% with a negative impact of 50 to 60 bps from hurricane disruption.
• Reported gross profit decreased by 120 bps due to our market share initiative, higher shipping expenses and  costs related to the integration of Ebuys.
• Reported operating expenses, as a percent of sales, increased by 20 bps, with higher technology and marketing expenses offset by lower overhead costs.
• Reported net income was $4.0 million, or $0.05 per diluted share, including pre-tax charges totaling $52.7 million, or $0.40 per diluted share, related to net non-cash impairment charges related to goodwill and intangible assets, offset by a reduction in contingent consideration related to the Company's acquisition of Ebuys. 
• Adjusted net income was $35.9 million, or $0.45 per diluted share, including weather related impact of  approximately $0.05 per diluted share.

Goodwill and Intangible Assets Impairment

The Company updated its long term expectations for Ebuys based on its performance over the last eighteen months. Although Ebuys brings valuable proprietary capabilities to compete on digital marketplaces, the Company believes it is necessary to moderate the growth assumptions assumed at the time of the acquisition. As a result, the Company significantly reduced its future contingent liability while simultaneously impairing the carrying value of goodwill and intangible assets related to the original target price of the acquisition. The total net non-cash charges related to the impairment of Ebuys' goodwill and intangible assets was $52.7 million, or $0.40 per diluted share, and is not included in the Company's Adjusted results.

Nine Months Ended October 28, 2017 Operating Results

• Sales increased 2.1% to $2.1 billion.
• Comparable sales decreased 1.0% compared to last year's 1.6% decrease.
• Reported gross profit decreased by 80 bps, driven by incremental clearance activity and inventory reserves and distribution costs related to the ongoing integration of Ebuys.
• Reported operating expenses, as a percent of sales, improved by 10 bps due to tighter expense management.
• Reported net income was $55.6 million, or $0.69 per diluted share, including pre-tax charges totaling $59.9 million, or $0.45 per diluted share, related to acquisition and impairment costs, restructuring expenses and foreign exchange loss.
• Adjusted net income was $92.2 million, or $1.14 per diluted share.

Third Quarter Balance Sheet Highlights

• Cash and investments totaled $330 million compared to $216 million in the third quarter last year.
• During the quarter, the Company acquired 0.5 million shares for $9.4 million and has $524 million remaining in its current share repurchase program. Since 2013, the Company has returned to shareholders over $600 million in dividends and share repurchases.
• Inventories were $547 million compared to $563 million for the same period last year. Excluding Ebuys and Gordmans, inventories decreased 3% on a cost per square foot basis.

Regular Dividend

DSW Inc.'s Board of Directors declared a quarterly cash dividend of $0.20 per share. The dividend will be paid on December 29, 2017 to shareholders of record at the close of business on December 15, 2017.

Fiscal 2017 Annual Outlook
The Company updated its full year outlook for adjusted earnings in the range of $1.40 to $1.45 per diluted share to reflect lower expectations for Ebuys and the impact of weather related disruptions this quarter. Guidance does not include net charges related to the impairment of goodwill and intangible assets.

Webcast and Conference Call
The 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 November 28, 2017. The teleconference will be available on replay and can be accessed by dialing 1-877-344-7529 and entering passcode 10114319.

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 November 21, 2017, DSW operates 514 stores in 43 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 also supplies footwear to 351 leased locations in the United States under the Affiliated Business Group. DSW also owns Ebuys, Inc., 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, visit http://www.dswinc.com. Follow DSW on Twitter at http://twitter.com/DSWShoeLovers and Facebook at http://www.facebook.com/DSW.

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 2017 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; our ability to protect our reputation; maintaining strong relationships with our vendors; our ability to anticipate and respond to fashion trends, consumer preferences and changing customer expectations; risks related to the planned acquisition of Town Shoes; 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 our affiliated business and international partners; our ability to successfully integrate Ebuys, Inc.; 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 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 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 leases of our properties; risks related to prior and current acquisitions; risks related to future legislation, regulatory reform or policy changes; fluctuations in foreign currency exchange rates; and risks related to holdings of cash and investments and access to liquidity. 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 Measures

In 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 goodwill and intangible assets impairment charges, acquisition costs, the amortization expense of acquired intangible assets and the change in fair value of contingent consideration liability related to the acquisition of Ebuys, restructuring costs related to the Company's expense management initiative, foreign exchange losses on Canadian dollar investments, and costs associated with the planned acquisition of Town Shoes. 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.

SOURCE DSW Inc.