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DSW Raises Outlook As Cost Cutting Pays Off

Shares of DSW rocketed more than 10 percent during Tuesday morning trading on positive news from the company’s third quarter earnings report.

The Columbus-based retailer reported adjusted earnings of 51 cents per share, beating Wall Street’s 49 cent per share prediction. Third quarter earnings reached $697 million, up from $666 million (44 cents per share) last year.

Revenue came in below forecasts, up 4.7 percent to $696.6 million. Analysts had hoped for $712 million. Comparable-store sales were also a sore spot, down 2 percent and well outside of the modest 0.6% drop that Wall Street had pegged, but less than the 3.9% drop during the same period last year.

Following several rocky quarters, DSW said planned cost-saving measures finally took hold during Q3. CEO Roger Rawlins cited tighter inventory and expense management for driving improvements in the company’s gross margin, resulting in an increase in net income.

“This quarter reflects the first step in our return to year over year earnings growth. After four consecutive declines, we reported a 16 percent increase in adjusted earnings per share this quarter,” he said.

The company has also cracked down on discounts, which Rawlins said would result in a more profitable holiday season.

Athletic shoes, which were a bright spot for DSW last quarter, continued to deliver during Q3. During the company’s earnings call, Chief Merchandising Officer Debbie Ferree said the athletic category continued to have “very strong momentum.” DSW’s recent expansion into children’s footwear was also cited as helping to drive customers back to stores.

At a time when footwear retailers across the industry are struggling with declining foot traffic, DSW has invested heavily in technology to help drive up sales. In February, the company announced its acquisition of online shoe retailer Ebuys Inc. to help boost its e-commerce business.

DSW said it is now seeing positive results from its decision to allow customers to pick up online orders in-store, with Rawlins noting that “a significant amount of digital demand” is now being fulfilled in-store.

To further boost online sales, the company will revamp its website following the holiday season, which Rawlins said will be more mobile friendly.

DSW upped its outlook for the remainder of the year, saying it now expects EPS in the range of $1.35-$1.45, up from its previous outlook of $1.32-$1.42.