DSW Inc. is making a play for the Canadian market, and analysts are generally upbeat about the move.
The retailer said Tuesday morning it acquired a stake in Canada’s largest footwear and accessories retailer, Town Shoes Ltd. DSW will purchase a 44 percent stake in the brand for about $62 million.
Analysts responded with cautious optimism on the move, noting that while the expansion is a beneficial one, it will take a few quarters for DSW to truly understand the Canadian market and see the full effects of the deal.
“We view this deal as a mild positive for DSW in that it now will have a platform in the Canadian market from which to grow,” said Camilo Lyon, analyst with Canaccord Genuity. “Over time, we see opportunities for DSW to leverage its infrastructure and buying power. However, the more immediate improvement to margins likely will stem from inserting private-label product into [TSL] stores.”
As a part of the deal, DSW will have the option to purchase any remaining stake in Town Shoes in four years, or existing shareholders can move their stake into DSW after three years.
“TSL provides [DSW] with an entrenched position in a sought-after market,” Susquehanna Financial analyst Christopher Svezia wrote in a note. “As such, we would expect both companies to leverage vendors, systems and operational efficiencies over time. We also believe this gives DSW experience in operating a much smaller box store — a potential growth opportunity in the U.S. marketplace.”
Executives were upbeat about the deal. “We have looked at Canadian entry options for some time and decided to acquire an existing operation with a long track record of success and to use this operation as a base from which we can establish the DSW brand in Canada,” Mike MacDonald, president and CEO of DSW, said in a statement.
Town Shoes operates 182 locations across Canada including The Shoe Co., Shoe Warehouse and Town Shoes brands. The transaction has been approved by both boards and is expected to close in May.