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DSW exits Ebuys online business, hikes dividend 25% and posts hit-and-miss year-end results

Shoe retailer already had taken a large write-down on the Ebuys business in the previous quarter
pair of women's high heels
CEO said increased dividend is due to "our strong cash flow and the benefit from U.S. tax reform"

DSW Inc. (NYSE: DSW) has raised the white flag on its Ebuys online shoe business and has posted year-end results that missed on revenue expectations for the fourth quarter, but has increased its quarterly dividend by 25% nonetheless.

Investors reacted favorably to all the news, as they sent the shares of DSW up around 6% in early trading, to US$20.73 a share.

After taking a pretax write-down on the Ebuys business of US$52.7mln, or 40 US cents a share, in its fiscal third quarter that ended Oct. 28, 2017, DSW announced today in reporting its year-end results that it "made the decision to exit the business" following what it called "a comprehensive evaluation of strategic alternatives for Ebuys."

DSW said it has revalued its remaining Ebuys assets, including inventory and fixed and intangible assets, at liquidation value. The Columbus, Ohio-based retailer of footwear and accessories said it expects to complete the liquidation process in early 2018 "and may incur additional one-time exit charges, which will be excluded from adjusted results."

In announcing the large Ebuys write-down in late November 2017, DSW CEO Roger Rawlins said the company had "moderated the long-term financial expectations" for Ebuys, but believed the business "provides valuable expertise to manage end-of-season clearance through online marketplaces."

"The successful integration of this business will unlock future synergies across our brand portfolio," Rawlins said at the time. DSW now will carry on without that business.

Adjusted earnings beat, revenue misses in fourth quarter

As for its year-end results, DSW said its net income in the 14-week period that ended Feb. 3, 2018, fell 62%, to US$11.7mln, or 15 US cents a share, from US$30.5mln, or 38 US cents a share, in the 13-week period that ended Jan. 28, 2017. Excluding after-tax charges of US$18.8mln, or 23 US cents a share, DSW said it had adjusted net income of US$30.5mln, or 38 US cents a share, in the latest fourth quarter, which beat analyst consensus estimates of 27 US cents.

DSW's fourth-quarter revenue totaled US$720mln, which was up 6.7% from its year-earlier revenue of US$674.6mln but missed analysts' consensus estimate of US$728mln.

For the year, DSW reported net income in the 53 weeks that ended Feb. 3, 2018, of US$67.3mln, or 83 US cents a share, down 46% from net income of US$124.5mln, or US$1.52 a share, in the 52 weeks that ended Jan. 28, 2017. The company put adjusted net income, which excluded after-tax charges of US$55.5mln, or 69 US cents a share, at US$122.8mln, or US$1.52 per share, in the latest fiscal year.

Revenue for the year rose to US$2.8bn from US$2.71bn.

Cash flow, tax reform lead to dividend hike

CEO Rawlins said the company was "drawing on our strong cash flow and the benefit from U.S. tax reform to enhance shareholder returns by boosting our quarterly dividend and reinvesting in strategic initiatives that will advance DSW's dominant position in the marketplace in the years to come."

DSW said its board raised the quarterly dividend to 25 US cents a share from 20 US cents. The increased dividend is payable April 6, 2018, to shareholders of record March 23, 2018.

Looking ahead, DSW said it expects full-year revenue in the 52-week period ending Feb. 2, 2019, to decrease by 1% to 3% from its year-earlier revenue due to its exit from what it called "non-core businesses" and the impact of a 53rd week on its results last year.

"Excluding the exit of non-core businesses and the 53rd week, total revenues are expected to increase in the 2% to 4% range," DSW said. "This assumes comparable sales increase in the low single-digit range and the opening of three to six net new locations for the DSW Segment."

DSW said full-year adjusted earnings per share are expected to range from US$1.52 to US $1.67 per diluted share, which would represent earnings growth of 4% to 14% excluding the income from the 53rd week. The company's outlook assumes a tax rate of 29% and 81 million shares outstanding. DSW said the guidance excludes charges related to the exit of Ebuys and does not assume the consolidation of Town Shoes. 

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August 25 2015
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