Interior of a DSW store.

DSW Inc. beat analyst estimates for the second quarter and delivered inline sales as the shoe retailer managed to stay on track despite retail challenges.

Net income for the quarter fell to $25 million, or 30 cents a diluted share, down from $37 million, or 42 cents, a year ago. The adjusted net income was $29 million, or 35 cents a share, which topped the FactSet estimate for earnings of 30 cents a share. The adjustment was related to the acquisition of Ebuys. The drop in income caused the stock to sell off by more than 8 percent to $23.89 in early trading.

Net sales for the three months ended July 30 increased 5.1 percent to $659 million from $627 million a year earlier. This was in line with the FactSet estimate for sales of $659 million. Comparable sales fell 1.2 percent versus last year’s increase of 1.8 percent.

“We are on track to deliver our outlook for the full year and we’ve made progress on a number of initiatives to drive sales and improve our financial trajectory,” said chief executive officer Roger Rawlins. “We’ve positioned fall inventories conservatively to chase the trend of the business and after conducting a comprehensive assessment of DSW’s cost structure, we’ve identified actions, most of which will benefit 2017, with approximately $25 million in annualized cost savings.”

DSW said on the company’s earnings call that the women’s athletic shoe trend continues, but sandals were flat as the weather didn’t motivate shoppers. DSW is also testing a focus on fashion athletic shoes at some stores and finding they get positive results. The trick is balancing that space with other shoe categories.

Looking ahead, DSW is sticking with full-year guidance for earnings in the range of $1.32 to $1.42.

CL King analyst Steven Marotta said, “While we applaud second-quarter execution, given the 5 cent beat in Q2 combined with the 5 cent fiscal year 2016 expense savings, we are a little concerned about second-half fundamentals as current-year guidance was simply reiterated (and not upped).” Marotta has a neutral rating and believes the stock is fairly priced here.

DSW said it would go in with a lean inventory for boots and chase what the customer wants in the fall. The company will continue to boost the athletic shoe offering as the category remains popular. DSW also said it is planning on fewer markdowns in the second half of the year.

 

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