The big American shoe retailer lifted its outlook for the full financial year after reporting better-than-expected profits in the third quarter, along with strong same-store-sales. The group's net income soared from $4.0 million in the third quarter of 2017 to $39.3 million in the latest quarter. The company now expects adjusted earnings per share in the range of $1.70 to $1.85, compared to its previous range of $1.60 to $1.75.
In the three months ended Nov. 3, DSW's total revenues jumped by 17.2 percent to $833 million. Comparable store sales climbed by 7.3 percent. The management attributed these results to its strategy to invest in good talent and marketing. In addition, it pointed to the nationwide roll-out of DSW Kids, which led to the most successful back-to-school season in the company's history.
The management also said that the recently acquired Camuto Group delivered its best results in the last five years, generating new streams of revenues while bringing design and sourcing capabilities in-house for DSW. It noted that integration efforts are on track, with supply chain and working capital improvements paving the way for a return to profitability.
In October, DSW announced an agreement with Authentic Brands Group (ABG) to acquire a majority stake in the Camuto Group in a $375 million deal. The Camuto Group is best known for its eponymous Vince Camuto brand and its footwear licenses for Jessica Simpson and the Lucky brand. Based on the terms of the agreement, ABG acquires 60 percent of the intellectual property of the Camuto Group's proprietary brands, and DSW holds the remaining 40 percent, managing the Camuto Group's operations.
DSW's improvement in profitability in the third quarter can also be attributed to recent efforts to liquidate inventories and to wind down some businesses. At the end of last year, the group announced its exit from Ebuys, an online off-price retailer of footwear and accessories it had acquired in February 2016.
The management also decided to exit its Town Shoes business, which operates 38 full-priced locations in Canada. It now wants to focus on DSW's core off-price retail operations in the country, consisting of Shoe Company, Shoe Warehouse and DSW Designer Shoe Warehouse.
In the U.S. retail segment, which was previously presented as the DSW division of the group, sales went up by 10.0 percent to $721.7 million in the quarter, driven by a 7.3 percent increase in comparable store sales. The footwear category exceeded expectations with an 8 percent comparable sales increase, the sixth quarterly rise in a row.
Comparable store sales were up in the high single digits in women's footwear, in the low single digits for men's, and in the low double digits for accessories. The management said that it continued with its strategy of growing the business through key product distortions, allowing the Kids and Boot categories to drive a 79 percent increase in volumes versus last year.
Overall, the company ended the quarter with 519 DSW stores in the U.S., up from 514 a year ago.
In the Canada Retail segment, revenues reached $80.1 million, with $8 million coming from the remaining revenues of the discontinued Town Shoes banner. The management said that its focus on the remaining Canadian chains drove high single-digit comparable growth. DSW ended the quarter with 172 locations in the country.
The ABG segment, which operates licensed shoe departments inside Stein Mart, saw comparable sales climb by 6.5 percent. The number of ABG stores declined to 287, 64 less than during the third quarter of 2017.
The overall gross margin improved by 3.2 percentage points to 32.6 percent, due to favorable merchandise margin and occupancy leverage.
Excluding pre-tax charges totaling $22.9 million from transaction costs related to acquisitions and lease exit costs, partially offset by a favorable adjustment in goodwill impairment resulting from a change in purchase accounting, the company's adjusted net income rose by 56 percent to $57.9 million in the quarter.