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!

Related Articles
  1. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  2. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  3. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  4. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  5. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  6. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  7. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  8. Investing News

    These 3 High-Quality Stocks Are Dividend Royalty

    Here are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
  9. Stock Analysis

    An Auto Stock Alternative to Ford and GM

    If you're not sure where Ford and General Motors are going, you might want to look at this auto investment option instead.
  10. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!