DSW Boosts Outlook as Cost Management Improves

DSW Inc. raised its outlook for the year and said efforts to improve cost management and reinvigorate sales are taking hold.

Adjusted profit topped views in the latest quarter, and shares, up 11% this month, rose another 6.2% premarket to $24.50 in light trading.

"This quarter reflects the first step in our return to year over year earnings growth," said Chief Executive Roger Rawlins, pointing to a 16% increase in adjusted earnings after four consecutive declines.

He said tighter inventory management drove gross margin improvement that, together with expense management, lifted net income.

"We've reduced clearance markdowns and we are positioned to generate more profitable sales in the holiday season," Mr. Rawlins said.

For the full year, DSW now expects to post $1.35 to $1.45 in adjusted per-share profit, up from its previous outlook for $1.32 to $1.42.

The discount shoe store recently completed the review it launched earlier this year, identifying $25 million in annual cost savings from organization realignment and improvements in procurement and other business processes.

Ohio-based DSW has in recent years spent heavily on technology, stores, marketing and support services, efforts that have helped sales but cut into the bottom line. This as retailers across the board struggle with dwindling foot traffic as shoppers increasingly move online. In a move to beef up its e-commerce business, DSW in February struck a deal to buy online shoe retailer Ebuys Inc. for $62.5 million.

In its latest period, DSW said sales at stores open at least a year fell 2%—more than anticipated but less than last year's 3.9% decline.

Over all for the October quarter, the company reported a profit of $39 million, down slightly from $39.3 million. Per-share earnings rose three pennies to 47 cents, thanks to a lower share count. The latest quarter's result includes 2 cents a share in Ebuys acquisition costs and a penny a share in restructuring-related expenses.

Adjusted earnings rose to 51 cents a share, above analyst estimates for 49 cents, according to Thomson Reuters.

Total revenue increased 4.7% to $696.6 million. Analysts were looking for $712.1 million in sales.

Gross margin improved 50 basis points.

Write to Anne Steele at [e-mail]

(END) Dow Jones Newswires

November 22, 2016 09:05 ET (14:05 GMT)

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