DSW Is Well-Heeled

By Greg Sushinsky | September 05, 2011 AAA

DSW (NYSE:DSW), discount shoe retailer, posted impressive second quarter profits on another quarter of strong sales. Even though profits were boosted by the benefit from a one-time gain, net income still increased strongly without this. The company also raised its full year outlook.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

A More Than Comfortable Quarter
For its second quarter, DSW had an adjusted profit of $33.7 million, or 74 cents a share, compared to adjusted earnings of $23.5 million, or 52 cents a share, in the year ago quarter. DSW's reported earnings were $139.9 million, or $3.96 per share, compared to $26.9 million, or $1 a share, in the same quarter a year ago, due to the one-time gain on the benefit related to the merger with Retail Ventures, Inc.

Net sales increased to $476.3 million from $415.1 million in the quarter a year ago, a 14.7% increase. Comparable sales rose 12.3%, after a 12% increase in the year ago quarter. The company raised its full year guidance to an EPS in the $2.70 to $2.85 range, with sales growth expected in the mid single-digit percentage range. DSW's results are all the more impressive given the economy and the struggles some other footwear retailers are having. (For related reading, see The 4 Rs Of Investing In Retail.)

Other Shoes
The retail shoe business is, with apologies for saying so, a tight fitting one. There is substantial competition with not only the specialty footwear retailers, but larger retailers along a wide economic spectrum that sell shoes as well. Department stores such as JCPenney (NYSE:JCP) and Macy's (NYSE:M), as well as discounters like Sears Holdings' (Nasdaq:SHLD) KMart and others, all sell footwear. These retailers don't rely on as concentrated a business model as the specialty footwear retailers such as DSW so their business isn't dependent on that segment alone. If the specialty retailers execute fully, they can post big numbers due to their comparatively concentrated business model.

DSW shows that retailers can succeed even in a tightly competitive space as shoe selling, though not all of them are doing that. Brown Shoe (NYSE:BWS), which runs Famous Footwear retail stores, reported an adjusted loss of 6 cents per share compared to a profit of 15 cents per share in last year's second quarter. Overall revenue was up in part due to an acquisition, but margins were crushed in both its wholesale and Famous Footwear divisions. Shoe Carnival (Nasdaq:SCVL) also turned in a disappointing quarter, with earnings per share coming in well below both last year's quarter and estimates. While Brown Shoe continues to expect to have problems with its margins near term, Shoe Carnival is looking for a strong seasonal performance in its back-to-school phase.

The Bottom Line
DSW is clearly executing in its niche of discount, value priced footwear. With the agonizingly slow economic recovery, the tougher times have been a boon to general discount retailers such as dollar stores and deep discounters. It hasn't been quite the same for the shoe retailers. Yet as DSW's impressive quarter shows, it still comes down to management and execution, even in a business climate that is providing some unforeseen potential advantages, with more consumers driven into value shopping. But DSW has been executing and showing good results since the trough of the recession in 2009. It continues to increase its annual net income and show strong business momentum, making DSW worth a look from investors. (Find out where to turn when looking to invest in a tumultuous market. For more, see Industries That Thrive On Recession.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus
Related Analysis
  1. Forget About Falling Oil, Look Into These 5 MLPs
    Chart Advisor

    Forget About Falling Oil, Look Into These 5 MLPs

  2. Right Time to Invest in Health Insurance Stocks? - Industry Outlook
    Stock Analysis

    Right Time to Invest in Health Insurance Stocks? - Industry Outlook

  3. This Top Value Fund Turns Volatility Into Profit
    Investing

    This Top Value Fund Turns Volatility Into Profit

  4. Coffee Continues To Shine In The Commodities Market
    Chart Advisor

    Coffee Continues To Shine In The Commodities Market

  5. When To Buy Strongly Performing Stocks
    Chart Advisor

    When To Buy Strongly Performing Stocks

Trading Center