DSW on Tuesday said that second quarter revenue rose 16.4% to $795 million, past Wedbush analyst expectations for $711 million, as comparable sales excluding its Canadian retail segment rose 9.7%, blowing past Wedbush's forecast for a 4% rise.
Gross profit in the quarter as a percent of sales expanded by 280 basis points, thanks to favorable merchandise margin and occupancy leverage, according to a company press release. Reported operating expenses, as a percent of sales, also increased, by 220 basis points, driven by marketing investments, acquisition-related costs and restructuring expenses.
The retailer also said it's closing its Canadian Town Shoe banner, the smallest among its newly acquired Canadian business. DSW reportedly missed out on an acquisition of Nine West and Bandolino, which went to Authentic Brands Group at a June bankruptcy auction.
Count DSW as yet another retailer benefiting from strong consumer spending in a robust economy.
"In all, we were impressed with the comp and what appears to be stronger underlying margins," Wedbush analysts Christopher Svezia and Paul Nawalany wrote in comments emailed to Retail Dive. "That said, we still have questions around the outlook and the 'Town' integration."
The retailer is contending with a lot of moving parts these days, as it unloads money-losing e-commerce operation Ebuys, takes up the rest of Canada's Town Shoes family of retailers and implements a new loyalty program based on customer feedback, which CEO Roger Rawlins has said is resonating with customers. The company said Tuesday that the consolidation of the go-forward Canadian business "will be slightly accretive in 2018."
DSW said it will shutter the 38 full-price, mall-based Town Shoes, mostly by the end of the fiscal year. The company also raised its full year fiscal outlook in several measures, saying it now expects revenue to rise between 6% and 9% (up from its previous outlook of a 1% to 3% decrease) and comparable sales to rise in the low- to mid-single digit range, up from its previous guidances for low-single digits.
"Still, despite the 2Q18 beat and raise of the FY18 outlook, there is no flow through, and [the second half of the year] is guided below Street expectations," Wedbush warned, noting that the company expects earnings per share to be down double digits, missing analyst consensus expectations for down single digits.