DSW Inc. Reports Second Quarter 2011 Results

COLUMBUS, Ohio, Aug. 30, 2011 /PRNewswire/ -- DSW Inc. (NYSE: DSW), a leading branded footwear and accessories retailer, announced financial results for the three month and six month periods ended July 30, 2011, which compares to the three month and six month periods ended July 31, 2010 last year.

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"We continued our strong performance in the second quarter, delivering double-digit increases in sales and comparable sales, expansion in gross margin and solid earnings growth driven by the success of our format and our strategies," stated Mike MacDonald, President and Chief Executive Officer, DSW Inc.  "We believe our sustained momentum is a clear indication of DSW's authority in the footwear category. The second quarter marked our eighth consecutive quarter of strong comparable sales approaching or equaling a double-digit growth rate.  The second quarter also represented a significant milestone for us as we completed the merger with Retail Ventures, Inc.  In our ongoing efforts to increase value for our shareholders, our Board approved a special dividend of $2.00 per share and the initiation of a quarterly cash dividend payment of $0.15 per share."  

"During the quarter we increased our men's and accessories penetration while continuing to grow women's fashion footwear," MacDonald continued.  "We also launched our mobile website and kids' shoes online to further our market share gains in the high-growth e-commerce business.  Despite economic uncertainty and equity market volatility, we expect fiscal 2011 to represent another strong year of growth and increased value for all DSW stakeholders."

Second Quarter Operating Results

• Net sales increased 14.7% to $476.3 million from $415.1 million in the second quarter of 2010.
• Comparable sales for the second quarter increased 12.3%. This follows a 12.0% increase in comparable sales in the second quarter of 2010.
• Reported net income was $139.9 million, or $3.96 per diluted share on 35.4 million weighted average shares outstanding, which included a net benefit of $106.2 million, related to the merger with RVI.  This compares to reported net income of $26.9 million, or $1.00 per diluted share on 22.3 million weighted average shares outstanding, in the second quarter of 2010.
• Net income, adjusted for items related to the completed merger with RVI, was $33.7 million, or $0.74 per diluted share on 45.3 million weighted average shares outstanding. This compares to adjusted net income of $23.5 million, or $0.52 per diluted share on 44.8 million weighted average shares outstanding, in the second quarter of 2010.
• At the conclusion of this press release is a reconciliation of reported to adjusted results.

Six-Month Operating Results

• Net sales increased 13.3% to $979.9 million from $864.7 million for the first six months of 2010.
• Comparable sales for the first six months increased 11.5%. This follows a 14.1% increase in comparable sales in the first six months of 2010.
• Reported net income was $101.7 million, or $3.54 per diluted share on 28.7 million weighted average shares outstanding, which included a net benefit of $28.4 million, related to the merger with Retail Ventures, Inc. This compares to reported net income of $21.0 million, or $0.98 per diluted share on 21.4 million weighted average shares outstanding, in the second quarter of 2010.
• Net income, adjusted for items related to the completed merger with RVI, was $73.3 million, or $1.62 per diluted share on 45.3 million weighted average shares outstanding. This compares to adjusted net income of $53.6 million, or $1.20 per diluted share on 44.8 million weighted average shares outstanding, in the second quarter of 2010.
• At the conclusion of this press release is a reconciliation of reported to adjusted results.

Second Quarter Balance Sheet Highlights

• Cash and investments totaled $418 million compared to $305 million at the end of the second quarter 2010.
• Inventories were $318 million compared to $309 million at the end of the second quarter of 2010. Inventory per square foot was flat compared to the second quarter of 2010.

Recent Merger Transaction

On February 8, 2011, the Company and its largest shareholder, Retail Ventures, Inc., announced the two companies had signed a definitive merger agreement providing for RVI to become a wholly-owned subsidiary of DSW in an exchange of shares at an exchange ratio of 0.435 DSW shares for each RVI share.  On May 19, 2011 the merger was approved by DSW and RVI shareholders and closed on May 26, 2011.  Pre-merger financial information presented in the DSW consolidated financial statements represents consolidated Retail Ventures' financial information. References to Retail Ventures or RVI refer to the pre-merger entity. The pre-merger financial information has been retrospectively recast for share and per share information, segment presentation and cost of sales.  

As a result of the merger, DSW assumed all of RVI's obligations, including 6.625% mandatorily exchangeable notes due September 15, 2011, known as Premium Income Exchangeable Securities ("PIES"). Subsequent to quarter-end, on August 10, 2011 the Company announced that it would settle the outstanding PIES for approximately 3.8 million shares of DSW Class A common stock on the maturity date of September 15, 2011.  Following the delivery of the shares to the holders of the PIES, the Company's public float will increase by the 3.8 million shares. However, these shares will not increase the number of DSW diluted shares reported in the first quarter of 2011 because they have always been included in the diluted share count since the PIES were issued in 2006.

Based on terms in the PIES agreement, the number of shares required to settle the PIES could increase up to an additional one million shares if during the applicable measuring period, August 15, 2011 to September 12, 2011, the average DSW stock price were to fall below $34.95. The DSW stock price closed yesterday over $47 per share.

Fiscal 2011 Annual Outlook

The Company is raising its annual guidance. DSW continues to estimate annual comparable sales to increase in the mid-single-digit range and now expects annual diluted earnings per share in the range of $2.70 to $2.85 for fiscal 2011, excluding any impact from the merger with RVI. This assumes moderate comp growth, flat gross margin and modest deleveraging of expenses in the second half of fiscal 2011, as compared to the second half of fiscal 2010.

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 (888) 299-7230. To hear a replay of the earnings call, which will be available approximately two hours after the conference call ends, dial 1-877-870-5176, followed by passcode 2661490. 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 July 30, 2011, DSW operated 319 stores in 39 states and operated an e-commerce site, http://www.dsw.com, and a mobile website, http://m.dsw.com.  DSW also supplied footwear to 352 leased locations in the United States.  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.

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 2011 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 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; risks inherent to international trade with countries that are major manufacturers of footwear; risks related to our cash and investments;  and the anticipated benefits of the merger with RVI taking longer to realize or not being achieved in their entirety or realization of risks related to the merger with RVI. 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.

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.