The stock of footwear and accessory retailer DSW (DSW 15.69) declined 1.0% on Monday, adding to what has been a miserable year so far for shareholders. At the closing bell, DSW was down 30.7% in 2017 and down 38.6% over the last 52 weeks. Things, however, are looking up today after the company reported better than expected second quarter results.
Shares of DSW are currently up 15.8% in pre-market trading.
DSW faced a low bar of expectations, which was set in part in the wake of Foot Locker's (FL 31.82) dismal earnings report last week. In truth, though, the low expectations have been ingrained for some time due to ongoing sales difficulties at DSW.
Those difficulties have been a byproduct of an increasingly challenging environment, which has been accented with heightened promotional activity due to increased competition from online and brick-and-mortar sources, as well as a shift in consumer buying preferences.
The second quarter, however, saw a nice turn in DSW's operating results. Sales increased 3.3% to $680.4 million and exceeded analysts' average expectation, comparable sales increased 0.6% versus a 1.2% decrease last year, and its reported gross margin jumped 50 basis points to 28.9%, driven by lower markdowns and favorable sourcing.
Inventories declined 5.2% year-over-year to $527.3 million even though its total square footage increased 5.1%. That is an encouraging sign that DSW may be in a position to distance itself in the near term from heightened promotional activity, which often weighs on a company's gross profit margin.
With the added help of lower overhead costs during the quarter, DSW reported a 5.3% increase in adjusted net income of $30.6 million or $0.38 per diluted share. The latter was comfortably ahead of analysts' average expectation and was 8.6% higher than the year-ago period as fewer shares outstanding helped partially in the computation.
On a related note, DSW announced its Board of Directors approved a new $500 million share buyback authorization in addition to the remaining $33 million under its current authorization. Additionally, the Board declared a quarterly cash dividend of $0.20 per share, which translates to an attractive dividend yield of 5.1% at Monday's closing price.
DSW reaffirmed its full-year outlook for adjusted earnings in the range of $1.45 to $1.55 per diluted share. At the midpoint of that guidance range, and based on Monday's closing price, DSW trades at 10.5x estimated FY17 earnings.