Retail Vet Takes DSW Helm

LOS ANGELES — Despite DSW Inc.’s announcement last week that it had swung to a loss during the fiscal fourth quarter, analysts said numerous opportunities still exist for the chain under newly appointed chief Michael MacDonald.

The former Shopko head, who will hold the title of president and CEO, takes over the spot occupied by former president Peter Horvath, who left DSW last May to join Limited Brands Inc. MacDonald was unavailable for comment last week. Debbie Ferrée, vice chairman and chief merchandising officer, will continue in her role.

“They did a very careful [executive] search, and looking at his background with Saks and Marshall Fields, he’s going to have a lot of in-depth knowledge about the shoe business,” said R.J. Jones, an analyst at Ragen Mackenzie, a division of Wells Fargo Investments. “With his experience at Shopko, there are also some similarities with the model of DSW.”

Jones added that the decline in earnings at DSW was not surprising given the current retail environment, but he was confident about its prospects. “DSW is one of the few [companies] out there that is showing some relative strength in attracting new customers,” he said.

Similarly, Susquehanna Financial Group analyst Christopher Svezia wrote in an earnings note that the retailer was positioned to prosper in the current economic environment.

“We believe the DSW chain offers a unique shopping experience that appeals to both a loyal and affluent shopper base … particularly in the better and luxury women’s product sectors,” he wrote. “In addition, the chain has significant sales growth opportunities that should continue to allow [it] to rapidly build its store base during the next few years.”

For the quarter ended Feb. 2, the company posted a net loss of $7.5 million, or 17 cents per diluted share, compared with a net profit of $1.1 million, or 2 cents, for the same year-ago quarter.

Sales increased nearly 5 percent to $348.2 million, versus $332.5 million for the same quarter of 2008. Same-store sales during the quarter declined 7 percent, compared with a 2 percent drop a year ago.

Douglas Probst, EVP, CFO and treasurer, said during a conference call with analysts and investors that despite the declines, the company continues to invest in its business, which could yield strong rewards when the economy improves. “We opened a record 41 new stores [in 2008]. We launched Dsw.com to further build our brand with a new and loyal customer. We continued to invest into our system to develop a strong and sustainable platform for growth.”

For the full year, the company reported earnings of $26.9 million, or 61 cents a share, compared with $53.8 million, or $1.21, the prior year. Sales were nearly flat, at $1.46 billion, compared with year-earlier sales of $1.41 billion.

During the coming year, the company said it plans to increase its spending on advertising by $15 million, most of which will be broadcast media.

The retailer has 10 new stores on the agenda for 2009. Comp-store sales are expected to decline in the mid-single digits. The company did not issue earnings guidance for fiscal 2009.

“Overall, our plans for 2009 assume a continued difficult economy throughout the year, and our approach is squarely on maintaining a strong balance sheet,” said Probst. “With this, we will be well positioned to respond to the challenges of this environment and take advantage of opportunities as they arise.”


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