DSW Inc. Reports Third Quarter 2012 Financial Results

            DSW Inc. Reports Third Quarter 2012 Financial Results

PR Newswire

COLUMBUS, Ohio, Nov. 20, 2012

COLUMBUS, Ohio, Nov. 20, 2012 /PRNewswire/ --

  oThird quarter sales increase 11.7% to $592.7 million; comparable sales
    increase 6.3%
  oFirst nine months sales increase 10.1% to $1,663.5 million; comparable
    sales increase 6.1%
  oIncluding a net benefit of $0.08 per share from an award resulting from
    the 2005 credit card litigation, as well as legacy charges from RVI, third
    quarter Reported EPS is $1.10 per share
  oThird quarter Adjusted EPS rises to $1.02 per share
  oCompany reiterates full year EPS guidance of $3.30 to $3.40, excluding
    one-time items
  oBoard of Directors declares quarterly dividend of $0.18 per share payable
    on December 28, 2012
  oCompany announces plans to open 25 to 30 new stores next year

DSW Inc. (NYSE: DSW), a leading branded footwear and accessories retailer,
announced financial results for the three-month and nine-month periods ended
October 27, 2012, which compare to the three-month and nine-month periods
ended October 29, 2011.

(Logo: http://photos.prnewswire.com/prnh/20100325/DSWLOGO-a )

"We are pleased with our third quarter results. Comparable sales grew for the
13^th consecutive quarter and earnings increased at a double digit rate,"
stated Mike MacDonald, President and Chief Executive Officer. "During the
quarter, we opened a record 26 new stores. We also paid a special dividend of
$2.00 per share to DSW shareholders this quarter, the second such dividend in
the last 13 months. Finally, we continued to make strategic investments that
will enable DSW to maintain its growth trajectory."

Third Quarter Operating Results

  oSales increased 11.7% to $592.7 million compared to last year's third
    quarter sales of $530.7 million.
  oComparable sales increased by 6.3%. This follows an increase of 5.2% for
    the third quarter of 2011.
  oReported net income was $50.1 million, or $1.10 per diluted share on 45.5
    million weighted average shares outstanding, which included a $3.6 million
    award resulting from the 2005 credit card litigation, as well as $0.2
    million in legacy charges from RVI. This compares to Reported net income
    in the third quarter of 2011 of $53.7 million, which included a non-cash
    benefit of $13.9 million related to the merger with RVI. Reported EPS for
    the third quarter last year was $0.75 per share.
  oNet income, adjusted for one-time items was $46.6 million, or $1.02 per
    diluted share on 45.5 million weighted average shares outstanding. This
    compares to Adjusted net income for the same period last year of $39.8
    million, or $0.88 per diluted share on 45.3 million weighted average
    shares outstanding.

Nine-Month Operating Results

  oSales increased 10.1% to $1,663.5 million from $1,510.6 million for the
    first nine months of 2011.
  oComparable sales for the first nine months increased 6.1% over an increase
    of 9.2% for the first nine months of 2011.
  oReported net income was $119.3 million, or $2.64 per diluted share on 45.2
    million weighted average shares outstanding, which included $5.2 million
    after-tax non-cash charges related to RVI and a $3.6 million after-tax
    award from credit card litigation. This compares to Reported net income in
    the first nine months of 2011 of $155.4 million, which included a non-cash
    benefit of $42.3 million related to the merger with RVI. Reported EPS last
    year was $4.30 per share.
  oNet income, adjusted for one-time items was $120.8 million or $2.66 per
    diluted share on 45.4 million weighted average shares outstanding. This
    compares to Adjusted net income for the same period last year of $113.1
    million, or $2.50 per diluted share on 45.3 million weighted average
    shares outstanding.

Third Quarter Balance Sheet Highlights

  oCash, short term and long term investments totaled $430 million compared
    to $369 million last year, an increase of 16.5%.
  oInventories were $422 million compared to $378 million last year, an
    increase of 11.8%, in line with expectations. On a cost per square foot
    basis, inventories in DSW stores decreased by 1% at the end of quarter.
  oThe company did not repurchase any shares under its $100 million share
    buyback program this quarter.
  oAt the beginning of the fourth quarter, the company closed on the
    acquisition of 810 AC LLC, which owned its corporate headquarters and
    distribution center on Air Center Drive in Columbus, OH in the fourth
    quarter.

Regular Dividend:

On November 20, 2012, DSW's Board of Directors declared the Company's
quarterly cash dividend payment of $0.18 per share. The dividend will be paid
on December 28, 2012 to shareholders of record at the close of business on
December 17, 2012.

Fiscal 2012 Annual Outlook

The Company is revising its annual 2012 earnings guidance. The Company now
expects Adjusted earnings per share in the range of $3.30 to $3.40 for the
53-week year ending February 2, 2013 compared to Adjusted earnings per share
of $3.00 for the 52-week year ended January 28, 2012. Comparable sales are
expected to grow in the mid-single digit range. This range includes an
estimated sales impact from Hurricane Sandy.

Please note that the Company's guidance does not include any share repurchase
activity under its $100 million share repurchase program, one-time legacy
costs related to RVI merger or the award from the 2005 credit card insurance
litigation.

Webcast and Conference Call

To hear the Company's live earnings conference call, log on to
http://www.dswinc.com today at 8:30 AM Eastern, or call (800) 860-2442 in the
U.S. or (412) 858-4600 outside the U.S. To hear a replay of the earnings call,
which will be available approximately two hours after the conference call
ends, dial (877) 344-7529 in the U.S. or (412) 317-0088 outside the U.S.
followed by conference number 10021224. An audio replay of the conference
call, as well as additional financial information, will also be available at
http://www.dswinc.com.

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 20, 2012, DSW operated
364 stores in 41 states, the District of Columbia and Puerto Rico, and
operated an e-commerce site, http://www.dsw.com, and a mobile website,
http://m.dsw.com. DSW also supplied footwear to 346 leased locations in the
United States under the Affiliated Business Group. For store locations and
additional information about DSW, visit http://www.dswinc.com. Follow DSW on
Twitter at http://twitter.com/DSWShoeLovers and "like" DSW on Facebook at
http://www.facebook.com/DSW.



DSW INC.
Q3 SEGMENT RESULTS


Net sales by reportable segment:
             Three months ended               Nine months ended
             October 27,  October             October     October
                          29,       %         27,         29,         %
             2012                   change                            change
                          2011                2012        2011
             (in millions)                    (in millions)
DSW          $  559.3     $ 491.9   13.7   %  $ 1,562.7   $ 1,396.4   11.9   %
Affiliated
Business     33.4         38.8      (13.9) %  100.8       114.2       (11.7) %
Group
Total DSW    $  592.7     $ 530.7   11.7   %  $ 1,663.5   $ 1,510.6   10.1   %
Inc.



Comparable sales change by reportable segment:
                  Three months ended              Nine months ended
                  October 27,      October 29,    October 27,    October 29,
                  2012             2011           2012           2011
DSW               6.6      %       5.2     %      6.3     %      9.5     %
Affiliated        1.8      %       4.9     %      2.5     %      6.0     %
Business Group
Total DSW Inc.    6.3      %       5.2     %      6.1     %      9.2     %



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 2012 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 opening and operating
new stores on a timely and profitable basis; continuation of supply agreements
and the financial condition of our leased business partners; disruption of our
distribution and fulfillment operations; 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 to drive traffic, sales and customer loyalty; maintaining
good relationships with our vendors; our ability to anticipate and respond to
fashion trends; fluctuation of our comparable sales and quarterly financial
performance; uncertain general economic conditions; our reliance on foreign
sources for merchandise and risks inherent to international trade; risks
related to our cash and investments; and the realization of risks related to
the merger with RVI, including risks related to pre-merger RVI guarantees of
certain Filene's Basement leases and a pension plan. 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 SEC. 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.





DSW INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
                                           As of             As of
                                           October 27, 2012  January 28, 2012
Assets
Cash and equivalents                       $   134,322       $   79,003
Short-term investments                     203,320           296,697
Accounts receivable, net                   26,245            16,996
Inventories                                422,467           334,390
Prepaid expenses and other current assets  22,891            24,448
Deferred income taxes                      90,100            116,473
Total current assets                       899,345           868,007
Property and equipment, net                276,496           235,726
Long-term investments                      92,674            53,858
Goodwill                                   25,899            25,899
Deferred income taxes                      —                 15,653
Other assets                               8,144             8,757
Total assets                               $   1,302,558     $   1,207,900
Liabilities and shareholders' equity
Accounts payable                           $   168,956       $   151,248
Accrued expenses                           130,256           126,998
Warrant liability                          —                 29,303
Total current liabilities                  299,212           307,549
Non-current liabilities                    144,867           113,764
Total shareholders' equity                 858,479           786,587
Total liabilities and shareholders' equity $   1,302,558     $   1,207,900





DSW INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
and
RECONCILIATION OF ADJUSTED RESULTS
(In thousands, except per share amounts)
(Unaudited)
                 Three months                                       Three
                 ended                             Adjustments      months
                               Adjustments         related to       ended
                 October 27,   related to the                       October
                               Merger with         award of         27,
                 2012          RVI                 damages
                                                                    2012
                 Reported                                           Adjusted
Net sales        $  592,734                                         $ 592,734
Cost of sales    (392,563)                                          (392,563)
Operating        (121,734)     302            (1)  (4,018)     (2)  (125,450)
expenses
Operating        78,437        302                 (4,018)          74,721
profit
Interest         2,575                             (1,869)     (2)  706
income, net
Income from
continuing
operations       81,012        302                 (5,887)          75,427
before income
taxes
Income tax
(provision)      (30,897)      (128)          (1)  2,245       (2)  (28,780)
benefit
Net income       $  50,115     $    174            $  (3,642)       $ 46,647
Diluted shares
used in per      45,523                                             45,523
share
calculations:
Diluted
earnings per
share:
Diluted
earnings per
share from       $  1.10                                            $ 1.02
continuing
operations
Diluted
earnings per     $  1.10                                            $ 1.02
share



Notes:
1) Reflects legal fees related to the settlement of RVI litigation and other
   RVI legal expenses, and related tax effects.
   Reflects DSW's receipt of an award of damages related to the 2005 data
2) theft of $5.3 million, net of expense of $1.3 million and interest accrued
   on the settlement of $1.9 million. Also reflects the related tax effects.



                            Three months      Adjustments         Three months
                            ended                                 ended
                            October 29,       related to the      October 29,
                                              Merger with
                            2011                                  2011
                            Reported          RVI                 Adjusted
Net sales                   $  530,747                            $  530,747
Cost of sales               (350,465)                             (350,465)
Operating expenses          (120,310)         $    5,273     (1)  (115,037)
Change in fair value of     20,924            (20,924)       (2)  —
derivative instruments
Operating profit            80,896            (15,651)            65,245
Interest (expense) income,  (1,151)           1,503          (3)  352
net
Income from continuing
operations before income    79,745            (14,148)            65,597
taxes
Income tax (provision)      (26,076)          297            (4)  (25,779)
benefit
Income from continuing      53,669            (13,851)            39,818
operations
Total income from
discontinued operations,    5                 (5)            (5)  —
net of tax
Net income                  $  53,674         (13,856)            $  39,818
Adjustments to net income
from diluted earnings per
share calculation:
Less: Gain in fair value
of PIES and tax effected    (20,167)     (6)  20,167
other PIES related
expenses
Less: (Loss) in fair value  159          (6)  (159)
of warrants
Net income for diluted
earnings per share          $  33,666    (6)  6,152               $  39,818
calculation
Diluted shares used in per  44,739       (7)                      45,313
share calculations:
Diluted earnings per
share:
Diluted earnings per share  $  0.75      (6)                      $  0.88
from continuing operations
Diluted earnings per share
from discontinued           $  0.00
operations
Diluted earnings per share  $  0.75      (6)                      $  0.88



Notes:
1) In addition to RVI-related expenses, also reflects lease and asset
   impairment of $5.0M related to an RVI office lease.
   Change in fair value of derivative instruments, which relate to RVI's
2) Premium Income Exchangeable Securities ("PIES") and warrants to purchase
   DSW or RVI (prior to the merger) common shares.
3) Interest expense related to the PIES.
4) Reflects impact of RVI-related tax expense.
5) Reflects the removal of discontinued operations, which relate to RVI's
   disposition of Value City.
   Net income for the diluted earnings per share calculation is adjusted for
6) the change in fair value of PIES and warrants and related tax-effected
   interest expense.
   The Reported weighted average shares outstanding represent DSW Class A
   Common Shares and Class B Common Shares as well as the PIES, warrants and
7) other dilutive instruments. Adjusted shares used in the per share
   calculations reflect DSW's weighted average shares outstanding as of the
   first quarter of fiscal 2011.



               Nine months                        Adjustments      Nine months
                                 Adjustments      related to
               ended             related to                        ended
               October 27,       the Merger       award of         October 27,
               2012              with RVI         damages          2012
               Reported                                            Adjusted
Net sales      $ 1,663,524                                         $ 1,663,524
Cost of sales  (1,110,518)                                         (1,110,518)
Operating      (355,775)         $  560      (1)  (4,018)     (4)  (359,233)
expenses
Change in
fair value of  (6,121)           6,121       (2)
derivative
instruments
Operating      191,110           6,681            (4,018)          193,773
profit
Interest       3,538                              (1,869)     (4)  1,669
income, net
Income from
continuing
operations     194,648           6,681            (5,887)          195,442
before income
taxes
Income tax
(provision)    (76,608)          (253)       (1)  2,245       (4)  (74,616)
benefit
Income from
continuing     118,040           6,428            (3,642)          120,826
operations
Total income
from
discontinued   1,253             (1,253)
operations,
net of tax
Net income     $ 119,293         $  5,175         $  (3,642)  (4)  $ 120,826
Diluted
shares used    45,173       (3)                                    45,395
in per share
calculations:
Diluted
earnings per
share:
Diluted
earnings per
share from     $ 2.61                                              $ 2.66
continuing
operations
Diluted
earnings per
share from     $ 0.03
discontinued
operations
Diluted
earnings per   $ 2.64                                              $ 2.66
share



Notes:
1) Reflects legal fees related to the settlement of RVI litigation and other
   RVI legal expenses, and related tax effects.
2) Change in fair value of derivative instruments, which relate to RVI's
   warrants.
   The Reported weighted average shares outstanding represent DSW Class A
   Common Shares and Class B Common Shares as well as dilutive instruments.
3) Adjusted shares used in the per share calculations reflect DSW's weighted
   average shares outstanding and assume full exercise of warrants at the
   beginning of the period.
   Reflects DSW's receipt of an award of damages related to the 2005 data
4) theft of $5.3 million, net of expense of $1.3 million and interest accrued
   on the settlement of $1.9 million. Also reflects the related tax effects.



                            Nine months       Adjustments         Nine months

                            ended             related to the      ended
                            October 29,       Merger with         October 29,

                            2011              RVI                 2011
                            Reported                              Adjusted
Net sales                   $ 1,510,645                           $ 1,510,645
Cost of sales               (1,002,661)                           (1,002,661)
Operating expenses          (339,557)         $  16,563      (1)  (322,994)
Change in fair value of     (56,895)          56,895         (2)
derivative instruments
Operating profit            111,532           73,458              184,990
Interest (expense) income,  (9,214)           10,484         (3)  1,270
net
Income from continuing
operations before income    102,318           83,942              186,260
taxes
Income tax benefit          73,625            (146,808)      (4)  (73,183)
(provision)
Income from continuing      175,943           (62,866)            113,077
operations
Total income from
discontinued operations,    173               (173)          (5)
net of tax
Net income                  176,116           (63,039)            113,077
Less: net income
attributable to the         (20,695)          20,695         (6)
noncontrolling interests
Net income, net of          $ 155,421         $  (42,344)         $ 113,077
noncontrolling interests
Adjustments to net income
from diluted earnings per
share calculation:
Less: Gain in fair value
of PIES and tax effected    (6,019)      (7)  6,019
other PIES related
expenses
Net income for diluted
earnings per share          $ 149,402    (7)  (36,325)            $ 113,077
calculation
Diluted shares used in per  34,781       (8)                      45,313
share calculations:
Diluted earnings per
share:
Diluted earnings per share  $ 4.29       (7)                      $ 2.50
from continuing operations
Diluted earnings per share
from discontinued           $ 0.00       (7)
operations
Diluted earnings per
share, net of               $ 4.30       (7)                      $ 2.50
noncontrolling interests



Notes:
   In addition to DSW and RVI transaction costs and RVI-related expenses, also
1) reflects lease and asset impairment of $5.0M related to an RVI office
   lease.
2) Change in fair value of derivative instruments, which relate to RVI's PIES
   and warrants.
3) Interest expense related to the PIES and RVI debt.
4) Reflects impact of reversal of valuation allowances and other
   merger-related tax items.
5) Reflects the removal of discontinued operations, which relate to RVI's
   dispositions of Value City and Filene's Basement.
6) Reflects the removal of the noncontrolling interest in DSW that RVI
   recorded through the merger date.
7) Net income for the diluted earnings per share calculation is adjusted by
   the change in fair value of PIES and related tax-effected interest expense.
   Reported weighted average shares outstanding are prorated for pre-merger
   RVI shares through the merger date and post-merger DSW shares after the
   merger date and through period end. Through the merger date, RVI weighted
   average shares outstanding are adjusted for the 0.435 exchange ratio. After
8) the merger date, the weighted average shares outstanding reflect DSW shares
   converted from RVI shares as well as DSW Class A Common Shares outstanding
   prior to the merger. Adjusted shares used in the per share calculations
   reflect DSW's weighted average shares outstanding as of the first quarter
   of fiscal 2011, prior to the merger with RVI.



This release contains certain Adjusted financial measures. These measures are
included as a complement to Reported results because management believes these
Adjusted financial measures help explain underlying performance trends in
DSW's business and provide useful information to both management and
investors. The unaudited Condensed Consolidated Statements of Operations and
Reconciliation of Adjusted Results should not be construed as an alternative
to the Reported results determined in accordance with generally accepted
accounting principles. Further, DSW's definition of Adjusted income
information may differ from similarly titled measures used by other companies.
While it is not possible to predict future results, management believes the
Adjusted information is useful to investors for the assessment of the ongoing
operations of DSW. The unaudited Condensed Consolidated Statements of
Operations and Reconciliation of Adjusted Results should be read in
conjunction with DSW's and RVI's historical financial statements and notes
thereto contained in DSW's and RVI's quarterly reports on Form 10-Q and annual
report on Form 10-K.



SOURCE DSW Inc.

Website: http://www.DSWinc.com
Contact: DSW Inc., Christina Cheng, Director of Investor Relations,
+1-855-893-5691
 
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