DSW is a footwear retailer operating nearly 1,000 stores. It also supplies footwear under the Affiliated Business Group (ABG), which partners with multi-category retailers to provide shoe assortments for them to sell in their stores.
Its non-GAAP loss came in at $(0.07) per share, down sharply from a $0.38 profit last year. Investors were expecting sharply lower EPS this year relative to last year, but they were expecting DSW to at least be profitable during the holiday quarter. Revenue was a brighter story as the top line rose 16.4% yr/yr to $843.4 mln, which was right in-line with market expectations.
Same store comps were quite good as well at +5.4%, slightly above market expectations. Breaking that down a bit, US Retail comps were +5.3% and ABG comps were +6.8%.
Fiscal 2018 was a busy year for DSW. It was one of the best years in its history from a same store comp perspective with full year comps up +6.1% following a -0.4% comp decline in FY17. DSW also crossed the $3 bln revenue threshold for the first time. It built a compelling product assortment, including the expansion of DSW Kids, a differentiated services offering with its W Nail Bar partnership, and the relaunch of its loyalty program.
With revenue coming in-line with expectations but EPS falling short, that's a telltale sign that margins were not as strong as expected. Costs came in higher than expected. DSW does not provide a lot of detail in the press release. However, it did announce a 3-year Long-Range Plan, which the company will discuss in detail at its Investor Day today. The company will also provide its outlook for FY19 at the Investor Day.
In addition to the EPS miss, this long-range plan announcement also appears to be weighing on the stock this morning. We do not want to speculate on what the plan may be, but this usually indicates underperformance and a turnaround plan is needed. Three years is a long time, suggesting the problems are pervasive. They will take some time to fix. Finally, not providing guidance in the press release is also spooking investors. Perhaps this is going to be a difficult year.