Image source: DSW Inc.

What happened

Shares of DSW Inc. (NYSE:DBI) were up 9.5% as of noon EST Tuesday, after the specialty branded footwear retailer announced stronger-than-expected third-quarter earnings.

So what

Quarterly revenue climbed 4.7% year over year, to $697 million, including a 2% decline in comparable sales, offset by contributions from new locations and $21.3 million from DSW's recent acquisition of Ebuys. Adjusted net income climbed 16% year over year, to $41.7 million, or $0.51 per diluted share.

By comparison, analysts' consensus estimates predicted DSW would turn in lower adjusted earnings of $0.48 per share on higher revenue of $711.6 million.

DSW CEO Roger Rawlins stated:

This quarter reflects the first step in our return to year over year earnings growth. After four consecutive declines, we reported a 16% increase in adjusted earnings per share this quarter. Tighter inventory management drove improvements in gross margin which, combined with effective expense management, resulted in an increase in net income. We've reduced clearance markdowns and we are positioned to generate more profitable sales in the holiday season.

Now what

As such, DSW now expects full-year earnings per share to be in the range of $1.35 to $1.45, an increase from its previous outlook for full-year EPS of $1.32 to $1.42. Analysts, on average, were expecting full-year earnings of $1.39 per share, or slightly below the midpoint of DSW's new guidance range.

In the end, though DSW technically fell short on the top line, investors are right to be encouraged by the company's pronounced return to profitable growth. And combining that performance with DSW's strong inventory position headed into the lucrative holiday season, it's no surprise to see shares trading higher today.

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