DSW Beats the Street

DSW Inc. is getting back on track.

After nearly a year and a half without a positive trend in women’s, the Columbus, Ohio-based retailer posted growth in the category during the third quarter, with strength in sandals, fashion athletic and a growing boot business. Still, analysts said the same challenges remain because the category is up against easy comparisons from 2013.

“Women’s comps just aren’t stabilizing [when you look at the year],” said Camilo Lyon of Cannaccord Genuity. “There is certainly more work to be done on that, and I do think much of it has to do with the lack of trends in women’s.”

At the same time, DSW has capitalized on growth in men’s and athletic. Overall, comps for the latter were up 7 percent in the period, fueled by fashion athletic.

Watch on FN

“They kind of missed the boat the first two quarters with the fashion-athletic styles, but they’ve kind of right-sized that and balanced athletic to shift toward the fashion aspects,” said Danielle McCoy of Wunderlich Securities. “The black yoga pant is what people prefer to wear now, and stylish athletic footwear is what women turn to in putting an outfit together. DSW was a bit better-positioned on that level.”

One of the other key issues facing DSW is balancing promotions and value, analysts said. 
“They need to be able to give value to the consumer and also better-balance the product to overall styles in a way that is more margin-accretive,” McCoy said.

“DSW needs to be tighter and sharper on pricing going forward,” Lyon added. “While there will be pressure on gross margin, these are necessary steps they’re having to take.”

In the coming year, DSW plans to continue ramping up omnichannel, which has been a significant talking point for the firm in the past several years. In recent months, DSW debuted PayPal as a payment option online and noted that it already represents 15 percent of the company’s online transactions. DSW also expanded its online selection of accessories.

In 2015, the brand plans to debut an updated website, introduce in-store pickup for online orders and provide more technology to help customers.

“We’re committing to making fundamental changes in our business that will keep us on top, capture new customers and grow market share. The investments we’re making are helping us redefine our brand cornerstones,” CEO Mike MacDonald said.

The retailer’s net income was $49.6 million, or 55 cents per diluted share. That’s less than the year-ago period’s $55 million, or 60 cents per share, but exceeded analyst expectations of 52 cents a share. Net sales for the quarter ending Nov. 2 were $669.9 million.

DSW also raised its guidance for fiscal year 2015. The company now expects to make $1.55 to $1.65 per share, versus earlier guidance forecasting $1.50 to $1.65.

Access exclusive content