DSW delivers Q1 sales rise amid Ebuys shutdown

Dive Brief:

DSW on Wednesday said that first quarter revenue rose 2.9% to $712 million as comparable sales rose 2.2%. Sales from the DSW flagship banner rose 7.3% and comparable sales rose 2%, according to a company press release.
Adjusted net income was $31.5 million or 39 cents per diluted share, including a loss of 4 cents per share from residual Ebuys operations, which the company exited at the end of the first quarter. Reported gross profit, as a percentage of sales, expanded by 40 basis points, due to its Ebuys wind-down, which was announced last quarter.
On May 10, the company completed its purchase of the remaining stake in Town Shoes of Canada for $44.7 million Canadian dollars ($35 million U.S. dollars) and appointed William Jordan, DSW Chief Administrative Officer, as President of that banner, according to the release.

Dive Insight:

DSW has a lot of moving parts these days, as it unloads money-losing e-commerce operation Ebuys, takes up the rest of Canada's Town Shoes banner, and implements a new loyalty program that CEO Roger Rawlins on Wednesday said is already resonating with customers.

Earlier this month DSW announced a revamp of its rewards program, DSW VIP, based on customer feedback, that involves quicker accumulations of points, including through shoe donations.

The first quarter delivered the company's second consecutive positive comp and the fourth positive footwear comp for the DSW brand, Rawlins said in a statement. But despite beating analyst expectations on revenue and earnings, the company's shares sank early Wednesday as executives held onto their guidance for full year adjusted earnings in the range of $1.52 to $1.67 per diluted share.

That has more to do with the company's previous stock rises than with its actual performance, according to a note from CL King & Associates emailed to Retail Dive. "We continue to view this name as a unique story in the retail sector: rapid innovator, bullet-proof balance sheet, strong management team and (at least recently) sound executor," CL King analysts wrote.

But the company has to stay on its toes, considering the vagaries of fashion and the specter of rising manufacturing costs, they also warned. "Considering how notoriously fickle consumers are, as evidenced by their historical penchant for flitting from one fashion trend to another, the company runs the risk of falling out of favor if product silhouettes do not properly align with customer tastes," according to CL King.

Increasing sourcing costs, mainly from Asia, may hurt margins, they also said, but noted that DSW has been making efforts to improve inventory management and prevent excess inventory "as one potential offset."