DSW’s Solid Execution Continues

NEW YORK — Analysts and investors continue to be impressed by DSW Inc.’s standout performance.

“They’re executing very well, even in a choppy environment,” said Camilo Lyon, analyst at Canaccord Genuity.

Kate McShane, analyst at Citi Investment Research, agreed: “Inventories were also clean heading into [the] holiday, [and] fourth-quarter guidance is likely conservative, given continued momentum in the business and easing margin comparisons.”

Several levers are being successfully pulled at the Columbus, Ohio-based retailer, said DSW President and CEO Mike MacDonald in a conference call with analysts last week.

Sales are up in all categories, with the largest one, women’s footwear, growing by 4 percent. Athletic shoes increased 9 percent, while men’s footwear and accessories, both of which DSW has identified as focus areas, advanced 11 percent and 13 percent, respectively.

“The thing I’m most excited about is the men’s business. Men are really embracing the fashion component, [which] continues to translate into our men’s accessory business,” said Debbie Ferrée, DSW’s vice chairman and chief merchandising officer.

As for the women’s category, Ferrée called the plain pump business “so phenomenal right now,” while the continuing casualization of shoes means the dress category is under some pressure. “We have a very strong dress business and need to protect our turf. We’re making sure we make some material changes and some construction changes to try to address that,” she said.

Meanwhile, comparable-store sales in women’s boots were flat, with fashion styles and booties performing better than functional boots and tall-shafted looks.

“We interpret this mix of selling to be primarily reflective of the mostly warm weather we experienced in the third quarter this year,” said MacDonald, while analysts noted there could be significant upside to the general boot business if the weather turns colder in the next few months.

In the coming quarters, DSW is experimenting with growth of its online offering of luxury footwear, handbags and accessories. It’s testing selling jewelry in stores, too.

The firm also is forging ahead with expansion, opening 39 new doors so far this year and planning for as many as 30 in 2013. In the third quarter, DSW earned a net income, adjusted for impact of one-time items, of $46.6 million, or $1.02 a share — a 17 percent improvement from adjusted net income of $39.8 million, or 88 cents, a year ago.

Revenue grew 11.7 percent to $592.7 million, from $530.7 million, on the back of a 6.3 percent increase in comps. For the full year, DSW expects adjusted earnings per share to be in the range of $3.30 to $3.40, with comps forecast to grow in the mid-single digit range.

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