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One Piece Of Advice: Never Bet Against Women's Shoes

|Includes:DSW, Collective Brands, Inc. (PSS)

By Jonathan Chen

There are a few things in life you should always count on. Taxes. Death. Women's shoes.

Women's shoe retailer DSW (NYSE: DSW) continues to beat every expectation on Wall Street, and raised its guidance as well. For the quarter ended July 30, Columbus, Ohio-based DSW reported earnings of $3.96 per share on share. Excluding the one-time gain from buying Retail Ventures, the company reported earnings of 74 cents per share on $476.3 million in revenues. Wall Street had been expecting earnings of 63 cents per share on $459.7 million in revenues. In addition, the company raised its 2011 earnings outlook. It now expects to earn $2.70 to $2.85 per share. Wall Street is calling for earnings of $2.40 per share.

"We continued our strong performance in the second quarter, delivering double-digit increases in sales and comparable sales, expansion in gross margin and solid earnings growth driven by the success of our format and our strategies," stated Mike MacDonald, President and Chief Executive Officer, DSW Inc. "We believe our sustained momentum is a clear indication of DSW's authority in the footwear category. The second quarter marked our eighth consecutive quarter of strong comparable sales approaching or equaling a double-digit growth rate. The second quarter also represented a significant milestone for us as we completed the merger with Retail Ventures, Inc. In our ongoing efforts to increase value for our shareholders, our Board approved a special dividend of $2.00 per share and the initiation of a quarterly cash dividend payment of $0.15 per share."

"During the quarter we increased our men's and accessories penetration while continuing to grow women's fashion footwear," MacDonald continued. "We also launched our mobile website and kids' shoes online to further our market share gains in the high-growth e-commerce business. Despite economic uncertainty and equity market volatility, we expect fiscal 2011 to represent another strong year of growth and increased value for all DSW stakeholders."

DSW has seen its revenues jump 15% year over year, and with its moves into men's shoes, as well as increased growth in accessories, DSW is firing on all cylinders. Cash and investments totaled $418 million compared to $305 million at the end of the second quarter 2010.

DSW trades under 15 times 2012 earnings, and sports a 1.3% dividend yield. The company, which competes with Collective Brands, Inc. (NYSE: PSS) has been able to capture the hearts of shoppers and investors alike. Shares are up ~21% on the year, severely outperforming the S&P 500.

There are just some things you do not bet against in life. Women's shoes appear to be one of them.



Traders who believe that DSW will continue to do well might want to consider the following trades:

  • At less than 15 times 2012 earnings, DSW is cheap. Growing 15% year-over-year indicates the earnings multiple is nowhere near the high side. Investors may want to consider looking at DSW shares.


Traders who believe that the U.S. economy is going to slow down may consider alternate positions:

  • Women love shoes, but if the money is not there, the money is not there. If the U.S. economy goes into a recession, consider shorting consumer discretionary names like DSW.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Stocks: PSS, DSW