DSW Inc. Reports Operating Results (10-Q)
Dsw Inc. has a market cap of $1.2 billion; its shares were traded at around $27.42 with a P/E ratio of 15.8 and P/S ratio of 0.8. DSW is in the portfolios of Jim Simons of Renaissance Technologies LLC, Bruce Kovner of Caxton Associates, Richard Snow of Snow Capital Management, L.P., Chuck Royce of Royce& Associates, Steven Cohen of SAC Capital Advisors, George Soros of Soros Fund Management LLC.
Highlight of Business Operations:Net Working Capital. Net working capital increased $22.9 million to $405.2 million as of May 1, 2010 from $382.3 million as of January 30, 2010, primarily due to the seasonal inventory increase, which was partially offset by a corresponding increase in accounts payable. As of both May 1, 2010 and January 30, 2010, the current ratio was 2.7.
Operating Cash Flows. For the three months ended May 1, 2010, our net cash provided by operations was $21.0 million, compared to $14.8 million for the three months ended May 2, 2009. The increase in cash provided by operations was primarily a result of an increase in net income partially offset by changes in net working capital.
Investing Cash Flows. For the three months ended May 1, 2010, our net cash used in investing activities was $4.4 million compared to net cash provided by investing activities of $12.6 million for the three months ended May 2, 2009. During the three months ended May 1, 2010, we incurred $9.2 million in capital expenditures. We incurred $4.8 million related to stores, $3.0 million related to information technology and infrastructure and $1.4 million related to supply chain projects and warehouses.
We expect to spend approximately $50 million for capital expenditures in fiscal 2010. Our future investments will depend primarily on the number of stores we open and remodel, infrastructure and information technology programs that we undertake and the timing of these expenditures. We plan to open approximately ten stores in fiscal 2010. During fiscal 2009, the average investment required to open a typical new DSW store was approximately $1.4 million, prior to construction and tenant allowances. Of this amount, gross inventory typically accounted for $0.5 million, fixtures and leasehold improvements typically accounted for $0.7 million and new store advertising and other new store expenses typically accounted for $0.2 million.
$150 Million Secured Revolving Credit Facility. We have a $150 million secured revolving credit facility that expires July 5, 2010. Under this facility, we and our subsidiaries are named as co-borrowers. Our facility has borrowing base restrictions and provides for borrowings at variable interest rates based on LIBOR, the prime rate and the Federal Funds effective rate, plus a margin. Our obligations under this credit facility are secured by a lien on substantially all of our and one of our subsidiarys personal property and a pledge of our shares of DSW Shoe Warehouse. In addition, our secured revolving credit facility contains usual and customary restrictive covenants relating to our management and the operation of our business. These covenants, among other things, restrict our ability to grant liens on our assets, incur additional indebtedness, open or close stores, pay cash dividends and redeem our stock, enter into transactions with affiliates and merge or consolidate with another entity. In addition, if at any time we utilize over 90% of our borrowing capacity under this facility, we must comply with a fixed charge coverage ratio test set forth in the facility documents. As of May 1, 2010 and January 30, 2010, $138.7 million and $132.6 million, respectively, were available under the $150 million secured revolving credit facility and no direct borrowings were outstanding.
Our cash and equivalents have maturities of 90 days or fewer. At times, cash and equivalents may be in excess of Federal Deposit Insurance Corporation (FDIC) insurance limits. We also have investments in various short-term and long-term investments. We have $11.0 million invested in certificates of deposit and participate in the Certificate of Deposit Account Registry Service®, which provides FDIC insurance on deposits of up to $50.0 million. Our available-for-sale investments generally renew every 7 to 182 days. These financial instruments may be subject to interest rate risk through lost income should interest rates increase during their limited term to maturity or resetting of interest rates and thus may limit our ability to invest in higher income investments.
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