Designer Shoe Warehouse (NYSE:DSW) has made great strides within the first few years of opening its doors in the U.S. Shoe lovers across the country reveled in the bounty of designer shoes put before them when warehouses sprouted up nationwide. Never before had such a wide variety of shoes been offered under one roof.
Now, DSW has taken the cue from fellow large-scale retailers and has made a move to enter the Canadian market, partially under duress by slowing sales back home. The Canadian market is ripe for the taking, but may help DSW crawl out of the slump they have recently seen.
For investors, DSW could be positioned in just the right place. While recent performance has not been pleasing, the fact that pricing is low and they are catering to a new and hungry market could swing things around. It may not be a hugely lucrative investment choice, but DSW's move into the northern territory may just bring its value back up, making now a good time to invest if you are looking to diversify.
A New Market
Because DSW now has a strong and promising foothold in the Canadian market, it should start to see improvements in sales. In just August alone, it plans on opening stores in open mall locations in Mississauga and Newmarket on August. Further stores are slated to open across the country over the remainder of the year as part of a $62 million deal between DSW and Toronto's Town Shoes Limited.
Canada is currently enjoying a huge retail boom, with luxury malls being constructed across the country. Many US retailers have already made the move up north with coupon sites, like Shopster, popping up to take advantage of the new opportunities.
According to chief executive of the Toronto chain, Bruce Dinan, Canadians are extremely excited about the new stores. Most mall shoe stores are far smaller than the DSW spread, which is close to 10 times greater in size and carry upwards of 22,000 pairs of shoes.
DSW already has 180,000 Canadians enrolled in their rewards program from shopping trips and using the U.S. website. The Canadian website will launch the same day stores open in Heartland Town Centre and at Woodland Hills Shopping Centre, which is anchored by Wal-Mart (NYSE:WMT).
A New Variety
Toronto's Town Shoes Ltd. offers and sells its own brand, but DSW will bring in a new expanse of brands and high-end footwear currently not carried by shoe outfits in Canada. This means sales should skyrocket for those who have not had access to these new brands.
Critics would argue that these brands can be purchased online, but most shoe shoppers feel more comfortable seeing and trying on shoes first before buying. Consumers can accept online shoe purchases only after they know what brands fit and at what size.
"The retail shoe market is certainly getting crowded in Canada. It's intensely competitive," said Toronto retail analyst Wendy Evans.
She emphasized that while Canada has a variety of choices in the retail show market, including small independent shoe stores, chains like Aldo and Capezio, bigger retailers like Winners and department stores like The Bay, they have little when it comes discounted designer shoes.
"While it's a well-represented sector, consumers are always interested in designer brands at off-prices, so I'm sure it will be well received here," Evans said.
It is estimated that about 80 percent of the brands carried in DSW's U.S. stores will also be offered in the Canadian stores.
Most investors know it is best to buy low and sell high. In the same breath, they will note that several other factors must be taken into consideration before investing. These would include market indicators such as profit margin, revenue growth, improving EPS, stock growth and more.
On the face of it, DSW's profits margins are below the industry average. Only department store Nordstrom (NYSE:JWN) rates lower. However, its Beta indicator, which reflects a stocks ability to withstand market volatility, is also below industry average - even lower than Nordstrom's. This means that, although return on investment in DSW stock will be low when the market goes up, the loss will also be low if it goes down.
Other healthy indicators for DSW are it's slight increase in revenue over the last year (0.5%) and its next to no company debt.
While Motley Fool has analyzed DSW stock to be on shaky ground, second to the bottom of big shoe retailers in performance, they failed to consider DSW's move into the Canadian market.
In the last quarter, the company has grown both sales and net income at a faster pace than industry average, contributing to a slight increase in its bottom line. What's more, the company's liquidity has also increased this quarter from the same period last year, contributing to an increase in stockholder equity by 14.54%. Together, the key liquidity measurements indicate that it is relatively unlikely that the company will face financial difficulties in the near future.
Since stock prices are at a low, getting in now before Canadian sales begin will produce greater returns. Waiting longer may result in stock purchases at a higher price.
The market for women's footwear was $2.6 billion in Canada for the 12 months ending in February, according to consumer market research firm NPD Group.
Investing in DSW stock at this point is a relatively safe bet for modest returns in the short term.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.