Q4 2011 Earnings Call Transcript

Transcript Call Date 03/20/2012

Operator: Good morning and welcome to the DSW Fourth Quarter and Fiscal Year 2011 Financial Results Conference Call. All participants will be in listen-only mode. After today's presentation there will be an opportunity to ask questions.

Please note that various remarks made about the future expectations plans and prospects of the company constitute forward-looking statements. 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 DSW's public filings with the SEC. This event is being recorded.

I would now like to turn the conference over to Mr. Doug Probst, CFO of DSW. Please go ahead, Sir.

Douglas J. Probst - EVP and CFO: Thank you, and good morning. Welcome to DSW's fourth quarter earnings conference call. With me today in Columbus are Mike MacDonald, our CEO; and Debbie Ferree, our Vice Chairperson and Chief Merchandising Officer is not with us today as she is travelling overseas with members of our supply chain team.

Today I will comment on our results for the fourth quarter and the full year of 2011 and provide our guidance for fiscal 2012. Then Mike will provide more detailed comments on our operating performance. As a reminder earlier this morning we issued a press release, detailing the results of operations for the quarter and the year ended January 28, 2012.

Our reported net income for the fourth quarter was $19.4 million which included a net $3.7 million charge in items related to our merger with Retail Ventures, which was completed earlier in 2011. You can find these items detailed in the condensed consolidated statements of operations and reconciliation of adjusted results attached to our press release.

As we've done in prior quarters we'll first walk you through the details of the cost and benefits associated with the merger and related items and the specifics of where they are reflected on our P&L, so that you have a clear comparison of our operating performance to last year.

The $3.7 million in RVI merger and related items in the fourth quarter breaks down to the following major components. First, $700,000 in costs included in SG&A primarily related to RVI operating expenses such as pension and legal costs.

Second, $3 million in non-cash benefits related to the change in fair value of the warrant. Third, $900,000 in non-cash income tax expense due to merger-related tax items, and fourth, a $5 million after-tax charge related to the guarantees of two leases that DSW inherited in the merger with RVI.

For the fiscal year, our reported net income was $174.8 million which included $38.6 million in net benefits related to the RVI merger. For the full-year, the impact of the merger is due to the following items.

First, $17.3 million in net costs included in SG&A related to the merger transaction and other RVI operating expenses. Second, $53.9 million in non-cash expense related to the change in fair value of the PIES and warrants. Third, $10.5 million in interest expense related to interest on the PIES and deferred financing fees on other RVI debts. Fourth, a $145.9 million in non-cash income tax benefit due to the reversal of the valuation allowance on NOLs and other merger-related tax items, (plus) a net $4.9 million charge related to two lease guarantees previously mentioned and finally a net $20.7 million charge related to RVI's non-controlling interest in DSW prior to the merger date.

Read our Earnings Call Transcript disclaimer.
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