DSW Q2 Beats Street

Analysts are bullish on DSW Inc.’s back half.

“DSW’s underlying fundamentals are sound,” said Susquehanna Financial analyst Christopher Svezia. “Looking to fiscal 2013, we feel traffic and conversion will likely continue to favor [them.] In addition, a full year of size optimization could help both comps and margins. Product margins will face somewhat easier comparisons.”

Scott Krasik, analyst at BB&T Capital Markets, agreed on the firm’s prospects for margin improvement.

“All of the earnings growth [for the full year] is expected to come in the fourth quarter given the easier comparisons on both a comp and merchandise-margin basis,” he said.

Sales increases at DSW were broad-based in the second quarter, with men’s footwear advancing the most, at 9 percent. Handbags and accessories were up 8 percent and athletic footwear rose 4 percent. Comps increased between 5 percent in women’s footwear and 8 percent in men’s footwear.

Michael MacDonald, president and CEO of DSW, told analysts on a call Tuesday that boots will be a very important category for both men and women in the fall.

“In athletic, it’s about color, technical [and] some new silhouettes. There is a sneaker wedge, which is a pretty high-fashion look that we think will be good in the fall. The flats will get some newness with the smoking slipper silhouette, and in the dress category there’s going to be a lot of special details, sequins and other details that really stand out on the floor,” he said.

MacDonald also noted he looks forward to implementing the drop-ship system in the back half of next year to further streamline operations between e-commerce and the brick-and-mortar business.

“Essentially, that allows us to display on our website product from our suppliers that actually is held in their warehouse, such that if a customer buys it, our supplier ships it from their warehouse directly to our customer’s home. And that will be another source of growth without the space requirements to support it, and it would also be a source of growth because it would be differentiated product, product that we wouldn’t otherwise have on our website,” he said.

For the period ended July 28, the Columbus, Ohio-based firm earned an adjusted net income of $30.1 million, or 66 cents a share, versus adjusted net income of $33.7 million, or 74 cents, in the same period a year ago.

Revenue advanced 7.5 percent to $512.2 million, thanks to a comparable-sales increase of 4.2 percent.

DSW also reiterated its fiscal 2012 guidance, which includes a mid-single-digit comp-sales increase for the year. The firm expects adjusted earnings per share to come in between $3.25 and $3.40, representing an 8.3 percent to 13.3 percent increase from the $3 earned last fiscal year.

DSW ended the period with $61.1 million in cash and cash equivalents, and no long-term debt.

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