DSW A (DSW, Financial) is a leading retailer of adult footwear and accessories. It involves an array of popular, brand-name footwear priced moderately below department stores. DSW has nearly 320 stores located across 40 states.
The company also operates 352 leased shoe departments nationwide and launched an e-commerce website in June 2008.
Mike MacDonald, DWS's CEO says, “We found that our customers are increasingly opting for DSW because of our fashion relevance. This combined with our expansive assortment of brands, everyday value and the ease of our assisted self-select service approach, drove increased sales across all categories and genders.”
Positives and Risks
Few retailers can match DSW with 2,000 footwear styles per store and more than 400 brands. DSW is successful particularly with the higher-margin women's premium and luxury categories.
Moreover, almost 90% of the sales in 2010 came from "DSW Rewards" loyalty program members. The program has become an effective tool to fine-tune marketing communications.
“We’re growing our brand awareness through our marketing efforts and we are increasing our productivity through solid execution in merchandising, inventory management and by virtue of our systems enhancement such as back locator and replenishment. These improvements in execution coupled with our well-developed loyalty program have us poised to continue to gain market share this holiday season,” Mike MacDonald also stated.
DSW is uniquely positioned and has been able to increase its public float, reduce redundant costs and reduce its outstanding shares to help its bottom line. It has been able to achieve all this with the purchase of common shares in Retail Ventures.
Despite these pluses, DSW may also suffer certain minuses. The impairment of its position may adversely affect operations. Furthermore, consumer pressures may distort the perception of DSW as a low-cost provider.
Other risks include store growth execution and fashion missteps.
Last quarter results
As of July 2011, the firm held a net cash balance of $4.19 per share. The firm easily covered its interest expenses with EBITDA in 2010 and likely will continue this trend going forward. The firm is in strong financial health.
Doug Probst, DSW's CFO, stated: “Capital expenditures for the quarter were $20.7 million reflecting eight new stores open, 17 store remodels and various business and IT projects. For the year, we continue to expect capital expenditures of nearly $80 million, which includes an investment in our fulfillment center to further support our growing dsw.com business, as well as one more new store which opened last week, one additional relocation and 12 additional remodels.”
The reported net income was $53.7 million with $13.9 million in items related to the merger with Retail Ventures, Inc., which was completed on May 26, 2011, the settlement of the Premium Income Exchangeable Securities or PIES on September 15, 2011 and related items.
Net sales were $530.7 million and comparable sales grew 5.2%, which represents the two-year comp of 15%. By segments, the comps for the DSW business which includes dsw.com were up 5.2% and the comps for the leased business division were up 4.9%. Strong sales growth combined with expansion in gross profit margin resulted in an 18.5% increase in adjusted operating profit to $65.2 million or 12.3% of net sales.
Valuation
The acquisition of Retail Ventures should result in the cutting of redundant costs and reducing shares outstanding by nearly 10%. Altogether, this should improve operating margins and earnings per share.
DSW’s value proposition continues to drive traffic and has allowed the firm to rebound to a greater degree than previously expected. DSW anticipates average store growth around 4% in the next few years. Its customer loyalty program accounted for 87% of sales in 2010, up from 84% in 2009. The top-line recovery has reduced promotional and markdown activity, leading to higher margins. Growth is expected to come organically in the near term, as the firm acts prudently toward expansion.
The fair value estimate is determined by the intrinsic value measure, a model based on the concept of residual income or economic profit.
Management & Stewardship
CEO Michael MacDonald brings more than 30 years of retail experience to the position.
The company also operates 352 leased shoe departments nationwide and launched an e-commerce website in June 2008.
Mike MacDonald, DWS's CEO says, “We found that our customers are increasingly opting for DSW because of our fashion relevance. This combined with our expansive assortment of brands, everyday value and the ease of our assisted self-select service approach, drove increased sales across all categories and genders.”
Positives and Risks
Few retailers can match DSW with 2,000 footwear styles per store and more than 400 brands. DSW is successful particularly with the higher-margin women's premium and luxury categories.
Moreover, almost 90% of the sales in 2010 came from "DSW Rewards" loyalty program members. The program has become an effective tool to fine-tune marketing communications.
“We’re growing our brand awareness through our marketing efforts and we are increasing our productivity through solid execution in merchandising, inventory management and by virtue of our systems enhancement such as back locator and replenishment. These improvements in execution coupled with our well-developed loyalty program have us poised to continue to gain market share this holiday season,” Mike MacDonald also stated.
DSW is uniquely positioned and has been able to increase its public float, reduce redundant costs and reduce its outstanding shares to help its bottom line. It has been able to achieve all this with the purchase of common shares in Retail Ventures.
Despite these pluses, DSW may also suffer certain minuses. The impairment of its position may adversely affect operations. Furthermore, consumer pressures may distort the perception of DSW as a low-cost provider.
Other risks include store growth execution and fashion missteps.
Last quarter results
As of July 2011, the firm held a net cash balance of $4.19 per share. The firm easily covered its interest expenses with EBITDA in 2010 and likely will continue this trend going forward. The firm is in strong financial health.
Doug Probst, DSW's CFO, stated: “Capital expenditures for the quarter were $20.7 million reflecting eight new stores open, 17 store remodels and various business and IT projects. For the year, we continue to expect capital expenditures of nearly $80 million, which includes an investment in our fulfillment center to further support our growing dsw.com business, as well as one more new store which opened last week, one additional relocation and 12 additional remodels.”
The reported net income was $53.7 million with $13.9 million in items related to the merger with Retail Ventures, Inc., which was completed on May 26, 2011, the settlement of the Premium Income Exchangeable Securities or PIES on September 15, 2011 and related items.
Net sales were $530.7 million and comparable sales grew 5.2%, which represents the two-year comp of 15%. By segments, the comps for the DSW business which includes dsw.com were up 5.2% and the comps for the leased business division were up 4.9%. Strong sales growth combined with expansion in gross profit margin resulted in an 18.5% increase in adjusted operating profit to $65.2 million or 12.3% of net sales.
Valuation
The acquisition of Retail Ventures should result in the cutting of redundant costs and reducing shares outstanding by nearly 10%. Altogether, this should improve operating margins and earnings per share.
DSW’s value proposition continues to drive traffic and has allowed the firm to rebound to a greater degree than previously expected. DSW anticipates average store growth around 4% in the next few years. Its customer loyalty program accounted for 87% of sales in 2010, up from 84% in 2009. The top-line recovery has reduced promotional and markdown activity, leading to higher margins. Growth is expected to come organically in the near term, as the firm acts prudently toward expansion.
The fair value estimate is determined by the intrinsic value measure, a model based on the concept of residual income or economic profit.
Management & Stewardship
CEO Michael MacDonald brings more than 30 years of retail experience to the position.
