DSW Inc. (
DSW)
Q3 2010 Earnings Call Transcript
November 23, 2010 8:00 a.m. ET
Executives
Leslie Neville Director, Investor Relations
Douglas J. Probst Executive Vice President and Chief Financial Officer
Michael R. MacDonald President and Chief Executive Officer
Deborah L. Ferrιe Vice Chairman and Chief Merchandising Officer
Analysts
Scott Krasik BB&T Capital Markets
David Mann Johnson Rice & Company LLC
Christopher Svezia Susquehanna Financial Group
John Zolidis Buckingham Research
David Berman Berman Capital
Presentation
Operator
Good day, ladies and gentlemen and welcome to the Third Quarter 2010 DSW Incorporated Earnings Conference Call. My name is Noellia [ph] and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. If at any time during the call you require audio assistance, please press star followed by zero and a coordinator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes.
I would now like to turn the presentation over to your host for today''s call, Leslie Neville, Director of Investor Relations. Please proceed.
Leslie Neville
Thank you and good morning. Welcome to DSW''s third quarter 2010 earnings conference call. With me today in Columbus are Mike MacDonald, our CEO; Debbie Ferree, our Vice Chairperson and Chief Merchandising Officer; and Doug Probst, our CFO.
Before we proceed, please note that earlier this morning we issued a press release detailing the results of operations for the quarter-ended October 30, 2010. Various remarks we make about the future expectations, plans and prospects of the company constitute forward-looking statements. The actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including those listed in today''s press release and in our public filings with the SEC. So with that I will turn it over to Doug.
Douglas J. Probst
Thanks, Leslie. Good morning, everyone. I will cover the financial performance for the third quarter and discuss our current outlook for the remainder of 2010. At that point, I will turn it over to Mike to give you an update on our strategic initiatives.
As previously reported, net sales for the third quarter increased to $489.3 million. Same-store sales increased 10.1% for the comparable period on top of an 8.7% increase a year ago. By segment, our comps for our DSW business which includes dsw.com were up 10.6% and comps for our lease business were up 4%.
The merchandise margin rate for the third quarter was 45.1% but as expected since the beginning of the year, the rate for the quarter declined from last years historically high rate of 46.3%. Please make no mistake, we were very pleased with our margin rate and margin dollar performance in the third quarter.
The occupancy expense dollars were virtually flat and as a result the rate decreased 100 basis points mainly due to the large positive comp in the quarter. As a percent of sales, our fulfillment and distribution center expense increased due to the incremental contribution of our dsw.com business and to support our growing size replenishment efforts.
The net result was a third quarter gross profit rate of 32.5% which brings our year-to-date rate to 31.9%. Although the fourth quarter will not be as high, we expect to achieve an annual gross profit rate of greater than 30% for 2010.
The SG&A rate decreased 180 basis points to 21.2% in the quarter due to the increased sales and overall decrease in overhead expense and a reduction in bonus expense compared to the prior year. You may recall that our business began to accelerate in the third quarter last year requiring us to increase the accrual for our annual incentive compensation.
Operating income for the third quarter was $55.1 million or 11.3% of sales. These were both new quarterly highs for DSW and compares favorably to the $44.7 million generated a year ago. Additionally, we recorded non-operating income of $1.5 million related to the sale of a fully impaired auction rate security.
