DSW reported a sales increase of 1.7 percent to $708.3 million for the third quarter ended Oct. 28, as compared to the same period a year ago. They were slightly below analysts' projections. On a same-store basis, however, sales decreased by 0.4 percent. The company attributed the decline to the accessories segment, comprising handbags and other leathergoods, whose sales declined in the low-teens. Same-store sales were also affected by an unusually severe hurricane season, whose negative impact was evaluated at between 0.5 and 0.6 percent.
Sales of footwear, which are DSW's core business, increased in the low single-digit range in the period, in line with the company's expectations. The company said it achieved its targets for the women's footwear business for the second quarter in a row, with demand better balanced between athletic and non-athletic assortments.
The kids segment exceeded the company's plans, with strong demand across all categories from both new and existing customers. The company now has a children's section in 60 percent of its warehouse stores. Online sales jumped by 26 percent during the quarter.
The U.S. shoe retailer's net profit fell by nearly 90 percent to $4.0 million compared with the third quarter of 2016, due to pre-tax charges of $52.7 million related to the Ebuys business, covering almost all the remaining goodwill, intangible assets and contingent liabilities of the online discount retailer. Without extraordinary items, the quarterly adjusted net income amounted to $35.9 million, still down from $41.7 million in the same quarter a year ago.
DSW acquired the Ebuys international e-commerce business for $62.5 million in February 2016, but it will not have to pay an earnout of $31.2 million to its previous management because of its poor performance. DSW said it has moderated its growth assumptions assumed at the time of the acquisition based on its performance over the last 18 months. It felt that it could grow the business by 30 to 40 percent a year, but in the latest period its revenues rose by only 6 percent to $22.7 million.
One of the problems has been sourcing products at the right cost for Ebuys. Going forward, DSW will use its websites to help clear excess inventories from its other divisions, including the core DSW business. Ebuys operates websites like ShoeMetro and ApparelSave in North America, Europe, Asia and Australia. DSW has placed Ebuys under new management to reduce its operating losses. It will evaluate the business model to see how it fits with DSW's strategy.