DSW Inc. (DSW) has surprised on the Zacks Consensus Estimate 3 out of the last 4 quarters by an average of 31.5% as consumer demand has returned.
DSW sells footwear and other accessories through 311 stores in 39 states. It also operated an e-commerce web site and supplies footwear to 355 leased locations in the United States.
The company sells brand name, designer and athletic footwear.
DSW can be addictive to many shoe lovers mainly because of the sheer amount of inventory in each store. I’ve known people to go to DSW’s in other cities while there on business just to see if there is different inventory in other parts of the country.
There is also a value component to shopping there as many DSW customers believe they’re getting more for their money as the shoes are usually priced below leading department stores for similar designer names.
Shoes Are Hot
Coming out of this recession, consumers have been buying more shoes. Maybe it’s because, for relatively low cost, you can get a whole new look. Or maybe it’s because, at some point because of more wear and tear, they must be replaced.
But whatever the reason, the shoe retailers have been benefiting in 2010.
DSW Sales Rise 16.5% in the Fiscal First Quarter
On May 25, DSW reported its fiscal first quarter results and it saw sales surge 16.5% to $449.5 million from $385.8 million in the first quarter of 2009. The first quarter of 2010 ended May 1, 2010. Same store sales jumped 16.2% compared to a decline of 4.7% last year.
DSW easily beat the Zacks Consensus by 28.9%. Earnings per share were 67 cents compared to the consensus of 52 cents. A year ago, it reported just 16 cents.
Reaffirmed Full Year Outlook
The company reaffirmed its full year earnings per share range of $1.65 to $1.75 when it reported first quarter results but it had already preannounced its results in late April and raised guidance to the current level from prior guidance of $1.35 to $1.45 per share based on preliminary sales for the quarter.
So the headline says DSW reaffirmed when, in fact, it actually raised its outlook a month earlier.
Zacks Consensus Estimates Climb Higher
Analysts appear even more bullish than the company itself. The 2010 Zacks Consensus Estimate has risen 9 cents to $1.83 in the last 30 days as 5 estimates moved higher in that time. This is 8 cents higher than the high range of the company’s earnings guidance.
Out of 5 covering analysts, 3 are strong buys and 2 are holds. Their ratings haven’t changed in the last 3 months.
Value Fundamentals
DSW is trading at 14.7x forward earnings or just below the cut-off for a value stock. But it is cheaper than the rest of its industry which has an average forward P/E of 16.5. It also has a price-to-book ratio of 2.1.
The company’s return on equity is also far better than the industry at 15% compared to just 9.8% for its peers.
DSW is a Zacks #1 Rank (strong buy) stock.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.
