The firm’s ubiquitous spatial layout along with a customer self-serve policy, have given rise to a low-cost business strategy with staying power. McDonald’s (NYSE:MCD) taught consumers the art of self clean-up and DSW has taken this self-dependence to a new level, focusing on scale discounts and minimal employee utilization to maintain profit margins.
Originally a wholly owned subsidiary of Retail Ventures Inc (NYSE:RVI), DSW was spun off from its parent in July of 2005. Having raised over $260 million in its IPO, the firm surpassed the $190 million target earmarked for the full repayment of outstanding debt to RVI. As of the completion of the spin-off, DSW became a constituent in the Clear Spin-Off index which is licensed for the Claymore/Clear Spin-Off ETF, symbol (NYSEARCA:CSD).
Having comprised over 30% of RVI revenues before the separation, DSW has solidified its history of profitability as an independent company. Despite some earnings fluctuations in the initial two year period, same-store sales grew steadily, along with the number of national locations. This expansion has been a factor in the firm’s valuation, which has experienced a 60% price appreciation since the stock’s solo debut.
Fundamental data supports a continued optimistic forecast, with trailing twelve month net income growth of 57.65%. Calculating this statistic for the two full years of the firm’s operation yields a figure of 151.1%. Profitability figures are also encouraging, with DSW’s operating margin of 7.59% which is slightly above the 7.12% industry average. Its return on equity [ROE] of 18.08% is also slightly above its peers at 17.70%.
Though an initial valuation analysis using the price to earnings [P/E] ratio points to an inflated market value, factoring in earnings growth through the trailing 12 month price to earnings to growth [PEG] ratio of 0.51 signals that the stock may still have some fancy footwork in store for investors in the stock.