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DSW Beats Q3 Earnings Estimates but Anticipates Highly Promotional Holiday Season

Off-price footwear and accessories retailer DSW Inc. (DSW) announced financial results for the third quarter ended October 31 that achieved Wall Street sales targets and slightly beat earnings estimates. Although the company reaffirmed its earnings guidance for the fiscal year, it is approaching the fourth quarter cautiously, given the difficult macro retail environment.

Total sales decreased 0.6% to $666 million from the prior year period, in line with analyst consensus estimates. However, comparable sales decreased by 3.9% compared to last year’s third quarter increase of 2.6%, and gross margin decreased by 270 bps driven by markdown activity and a valuation reserve on a special inventory purchase.

President and CEO Mike MacDonald said in a statement: “Our third quarter performance was disappointing. Unseasonably warm temperatures, cautious consumer spending and slower tourism contributed to weak sales trends and a difficult retail environment.”

Net income from continuing operations decreased by 21 percent to $39.3 million, or $.44 per share, above analyst consensus of $.43.

DSW reiterated its earnings guidance for the year to be in the range of $1.40 to $1.50 per share, assuming approximately four percent revenue growth and flat comparable sales performance for the full year.

MacDonald added: “We remain cautious about the retail environment in the fourth quarter and are anticipating a highly promotional holiday season. As a result, we are intensifying our merchandising and marketing efforts to capture market share and drive traffic, while rigorously managing our expenses.”

The company announced early this month that Chief Innovation Officer Roger Rawlins will succeed MacDonald, who is retiring at the end of the year.

DSW operates 469 stores in 42 states, the District of Columbia and Puerto Rico, as well as e-commerce and mobile sites. It also manages the footwear business of multi-category retailers in another approximately 380 locations through its Affiliated Business Group.