Shares of DSW Inc. (DSW 25.17, +2.04, +8.82%) opened sharply higher today (+16%)
after the company reported strong Q3 (Oct) earnings this morning. The company
has now reported impressive back-to-back same store comp quarters, which is an
indication that its turnaround is making progress.
DSW is a footwear and accessories retailer that offers a wide selection of brand name and designer products in the dress, casual, and athletic categories for women, men, and kids. DSW also supplies footwear under its Affiliated Business Group division, which partners with multi-category retailers to develop strategies and business models for seamless, on-brand shoe assortments.
Of note, in early November, DSW acquired the operations of Camuto Group, including its entire global production, sourcing, and design infrastructure, with operations in Brazil and China; a state-of-the-art distribution center in New Jersey; and a large amount of working capital. The deal transformed DSW into one of North America's largest footwear companies.
Turning to the Q3 (Oct) results, non-GAAP EPS jumped 56% year/year to $0.70 while revenue rose 17.2% year/year to $833 mln. Both results were well ahead of market expectations. Same store comps increased by a robust +7.3% -- not quite the +9.7% comps improvement reported in JulQ, but still quite good.
DSW says that its investments in merchandising, marketing, and talent drove momentum on the top line, as showcased by the company’s achievement of comp growth across all of its businesses. During the quarter, the company also achieved what it describes as “the most successful back-to-school season in [its] history”, supported by and meeting additional strata of demand through its recently completed nationwide roll-out of its DSW Kids category. Furthermore, the company’s recently acquired Canadian business delivered its best results in the last five years.
Regarding its acquisition of Camuto Group, the company continues to emphasize that the deal adds both powerful design and sourcing capabilities in-house and new streams of revenue from a leading lifestyle brand in fashion footwear. Integration efforts remain on track, with supply chain and working capital improvements paving the way, says the company, for a return to profitability.
Overall, this was a nice quarter for DSW. After two years of inventory destocking, DSW is beginning to see the benefit of a more productive inventory position. DSW had been consolidating its vendor base, but after acquiring Camuto, DSW has decently substantial production and design capabilities of its own. It will be interesting to see how this impacts the business’ strategies and efficacy in the coming quarters and years.
DSW has been in turnaround mode and has made good progress. DSW has been converted into one of North America's largest footwear operators, leveraging vertical product development expertise and a vast distribution network. Back-to-back comps of +9.7% in JulQ and now +7.3% in OctQ are the best evidence that the company’s turnaround is making headway, while the company’s efforts to diversify its offerings for its customers via acquisitions and category launches further validate the company’s thesis of development. The footwear business is very competitive, but DSW seems to be taking steps in the right direction to strengthen its position within the field.
- OUR VIEW
- LEARNING CENTER