DSW stock soars more than 20% after earnings crush estimates

DSW stock soars more than 20% after earnings crush estimates

This stock is on track for its biggest-ever one-day gain

Shares of discount footwear and accessories retailer DSW Inc. soared more than 20% Tuesday to put them on track for their biggest-ever one-day gain, after the company crushed earnings estimates for the second quarter and raised its full-year guidance.

Volume of 10.5 million shares traded was more than six times the daily average.

The company said it had a net loss of $38.4 million, or 48 cents a share, in the quarter, after net income of $28.7 million, or 36 cents a share, in the year-earlier period. The loss was mostly due to charges related to the integration of the company’s Canada business, which it acquired in a two-step deal, and decision to exit one loss-making part of that business.

Adjusted per-share earnings came to 63 cents, well ahead of the FactSet consensus of 46 cents. Revenue rose to $793.7 million from $681.7 million, also ahead of the FactSet consensus of $691 million. Same-store sales rose 9.7%, far ahead of the 2.7% FactSet consensus.

Shares of discount footwear and accessories retailer DSW Inc. soared more than 20% Tuesday to put them on track for their biggest-ever one-day gain, after the company crushed earnings estimates for the second quarter and raised its full-year guidance.

Volume of 10.5 million shares traded was more than six times the daily average.

The company said it had a net loss of $38.4 million, or 48 cents a share, in the quarter, after net income of $28.7 million, or 36 cents a share, in the year-earlier period. The loss was mostly due to charges related to the integration of the company’s Canada business, which it acquired in a two-step deal, and decision to exit one loss-making part of that business.

Adjusted per-share earnings came to 63 cents, well ahead of the FactSet consensus of 46 cents. Revenue rose to $793.7 million from $681.7 million, also ahead of the FactSet consensus of $691 million. Same-store sales rose 9.7%, far ahead of the 2.7% FactSet consensus.

DSW raised its full-year EPS guidance to $1.60 to $1.75 from a prior range of $1.52 to $1.67. The FactSet consensus is for EPS of $1.61. Revenue is expected to climb 6% to 9%, up from prior guidance of down 1% to 3%.

Chief Financial Officer Jared Poff said the company now has two reporting segments, the U.S. retail segment and the Canadian retail segment. “Our priorities this year are to align the DSW Canada banner closer with our U.S. business and strengthen inventory businesses,” he said on the earnings call.

The Canadian business comprises Shoe Company, Shoe Warehouse and DSW Designer Shoe Warehouse. The company is exiting the full-price, mall-based Town Shoes brand, which has 38 locations. That process is expected to be completed by fiscal year-end. The Canadian business is expected to generate about $215 million of revenue and to slightly boost adjusted earnings this year.

DSW Canada will focus on growing online as Canadian shoppers are beginning to embrace e-commerce, said Poff. The company will upgrade its e-commerce site next year to improve the mobile experience, integrate the loyalty program and enable new shipping capabilities, he said.

DSW Canada also has room for store growth with a potential network of up to 50 locations over time.

“We have a significant degree of vendor overlap between our Canadian and U.S. retail operations. We expect to improve sourcing costs as we leverage the size of DSW’s,” he said.

Elsewhere, DSW said it improved gross margins by 230 basis points, mostly due to lower clearance markdowns, an improvement in sourcing costs and narrowing operating loss at the DSW segment. But sales, general and administrative costs rose 23% and increased 130 basis points as a percentage of sales.

Other shoe company shares were mixed on Tuesday. Shoe Carnival Inc. SCVL, +5.91% which will report its second-quarter earnings after the bell today, was up 3.8%. Steven Madden Ltd. SHOO, -0.44% was down 0.3%.

Boot Barn Holdings Inc. BOOT, +4.06% was up 2.5% and Caleres Inc. CAL, +3.18% which owns Dr. Scholls’s and Famous Footwear, was up 3%. Crocs Inc. CROX, +1.39% was down 0.9%, Deckers Outdoor Corp. DECK, +0.71% which owns UGGs, was down 0.2%.

Rocky Brands Inc. RCKY, -1.51% which makes hunting and hiking boots, was up 1.9%, VF Corp VFC, +1.11% which owns Timberland and Vans, was up 0.4% and Wolverine World Wide Inc. WWW, +1.00% which owns Hush Puppies and Keds, was up 0.2%.

In the athletic shoe space, Skechers U.S.A. Inc. SKX, -0.10% was down 0.6% and Under Armour Inc. UA, +1.37% was up 0.2%, Foot Locker Inc. FL, -1.45% was down 1.1% and Nike Inc. NKE, -0.08% was flat.

DSW shares have gained 56% in 2018, while the S&P 500 SPX, +0.03% has gained 8%.

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