Analysts: DSW Momentum to Continue

DSW is poised to have another good year, analysts said this week.

Part of the reason is the retailer is capturing new traffic as stores increase the men’s assortment, with men’s sales outperforming very strong comparable-store results in women’s footwear in the fourth quarter.

“DSW undoubtedly is benefiting from a strong footwear cycle, but we believe it is gaining market share. And the combination of product trends, value positioning and increasing brand awareness will likely drive comp growth in excess of full-year guidance for fiscal year 2011,” said Christopher Svezia, analyst at Susquehanna Financial.

Steve Marotta, analyst at C.L. King & Associates, said DSW has opportunities to enhance gross margin, “largely offsetting cost headwinds.”  

And BB&T analyst Scott Krasik noted “DSW continues to report the strongest results among footwear retailers, and as comparisons get more difficult, its ability to outperform is even more impressive.”

According to the firm, all categories are driving sales momentum.

“The women’s categories and trends …. whether it be the naturals or neutrals or plain pumps, all those strategies and expectations around trends are proving better than planned,” said Debbie Ferrée, DSW’s vice chairman and chief merchandising officer.

On the athletic side, “what we’re really seeing [is a] shift out of toning … into the lightweight running and technical [product], and that piece of our business is actually doing very well,” she added.

DSW’s top line grew 16 percent to reach $468.5 million in the fourth quarter, thanks to comp sales growth of 14.9 percent, which was in turn driven by a combination of increased traffic and an increase in conversion, said the firm’s EVP and CFO, Douglas Probst.

Having quadrupled profits in the past two years, DSW now wants to expand its private-label business, which represented about 7 percent of sales in 2010. The firm aims to grow it to 9 percent in 2011, President and CEO Michael MacDonald said in a call with analysts.

“Private brands create differentiation, while giving us the opportunity to provide great value to our customers and/or margin enhancement,” MacDonald added.

The firm also sees opportunity in the men’s segment, as well as accessories.

“Men’s dress and casual footwear penetration was stable at 15 percent in 2010, but men’s grew faster than the total company in the fourth quarter of 2010. This was significant given the strength of the women’s business,” said MacDonald.

Meanwhile, accessories improved by 17 percent in 2010, and the firm is both broadening and deepening its efforts in that category to grow at an even faster clip this year.

Also planned for 2011 are 19 store openings, a mobile commerce application, the introduction of kids’ shoes on DSW.com and the ability to sell internationally through the website, the firm said.

The Columbus, Ohio-based company’s net income rose 38 percent to $18.5 million, or 41 cents a share in the fourth quarter. However, analysts were looking for income of 44 cents, as polled by Yahoo Finance.

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