By David Russell

DSW Inc. (DSW) ripped to its highest price in almost two years Thursday, prompting bearish trades streamed into the specialty footwear retailer.
optionMONSTER's Depth Charge tracking system detected a number of so-called risk-reversal trades Thursday morning as the stock approached $21. The transactions consisted of investors selling January 25 calls for $0.65 to $0.70 while buying January 17.50 puts for $1.05 to $1.10.

Q2 2009 Earnings Call

August 26, 2009 8:00 am ET

4:20 PM, Aug 26, 2009 --

• NYSE down 9 (0.1%) to 6,687.94.
• DJIA up 4.23 (0.04%) to 9,544.
• S&P 500 up 0.12 (0.01%) to 1,028.
• Nasdaq up 0.20 (0.01%) to 2,024.

GLOBAL SENTIMENT

Background

Retail Ventures (RVI) is a holding company that owns 63% of another public company, DSW Inc (DSW). While RVI does have certain liabilities (related to its divestitures of other businesses) and its own corporate costs, its ownership in DSW is now the dominant determinant of RVI's value as a company.

The Big-Takeaways for July

• Layoffs/loss of income are once again causing consumers to be very budget conscious and, as a result, significantly cutting back on spending
• To avoid temptation, consumers just aren’t shopping (for large or small purchases) and this is despite numerous clearance sales and high levels of promotion this month
• Consumers want cheap! We’re seeing more trade-down to lower priced stores and more shoppers looking for the cheapest version of the item they need
• Teens/parents are back in the mall looking for back-to-school items and only buying when the price is deemed right. And while they are buying, consumers are hunting for the best deals this year regardless of whether it takes more time and effort
• Interest/spending at mid/higher priced women’s apparel remains abysmal

The Results, Please!

July brings another downturn in household financial stability and increasing layoffs/loss of Income is the reason:

By Charles Rotblut

Housing data will be among the economic headlines with CaseShiller, existing home sales and new home sales data being released. We will also see the first set of revisions to Q1 GDP.

Another retail casualty about to hit, this time clothing chain Filene's Basement (BSMTQ.PK). Bloomberg cites two people familiar with the situation, who claim a Chapter 22 (that is a repeat 11 for the less than cynical) may be filed as soon as today.

Filene’s Basement, the century-old clothing chain, may seek bankruptcy protection this week, according to two people with knowledge of the plan.

F3Q08 Earnings Call

November 25, 2008 8:00 am ET

F2Q08 Earnings Call

August 28, 2008 8:00 am ET

DSW Inc. (DSW)

F1Q08 Earnings Call

Earlier this morning, DSW (DSW) reported 1Q08 results that were essentially in-line with expectations. The company generated $0.23 per share, missing the consensus estimate by a penny, and reiterated its full-year earnings guidance range of $0.75-$0.85.

At first glance, management's fiscal 2009 EPS guidance range (representing a 30%-38% decrease y/y) seems overly conservative. However, the company faces stiff headwinds from not only the deleveraging effect that negative single-digit comps will have on the occupancy expense line item, but also e-commerce channel development costs and IT improvements. Because of these incremental expenses, management expects operating expenses to increase by at least 200 basis points throughout the balance of the year (or more than 22.5% of sales), making it incredibly difficult to outperform earnings expectations. Disciplined inventory management should offset some of the impact, but we doubt it will be enough for the company to significantly exceed its outlook for the year.

It's a holiday-shortened trading week, but there are a number of retailers reporting 1Q08 results in the coming days. We're going to take a look at a few footwear retailers today, as this has been one of the most volatile sectors in retailing over the past month and seen a fair amount of institutional shareholder turnover.

DSW (NYSE: DSW)
DSW will report full 1Q08 results Thursday morning before the market opens and host a conference call at 8:00 am EST (Dial-in: 800-706-7748, Pwd: 70368480). Management already reported 1Q08 sales of $366M and a same-store sales decline of 5.4%, and introduced full-year EPS guidance ($0.75-$0.85) that fell well short of analyst expectations. The stock has been subsequently penalized by the market, falling from $15 to its current price in the low $13 range (16x-17x the midpoint of the fiscal 2009 guidance).

One theme I like to harp on is ignore these government reports as much as possible - the herd on Wall Street reacts as if they are accurate, but most are highly flawed. Instead listen to the companies themselves. JCPenney (JCP) is out with exactly the reason I don't believe the "stocks are cheap on 2008 earnings" argument.

• Mid-tier department store operator JC Penney Co Inc (NYSE:JCP - News) on Friday slashed its first-quarter earnings forecast, saying sales through the Easter holiday were below expectations and noting that consumer confidence is at a multi-year low.
• "J.C. Penney counts half of American families as its customers, and they are feeling macro-economic pressures from many areas, including higher energy costs, deteriorating employment trends and significant issues in the housing and credit markets," Myron "Mike" Ullman, chairman and chief executive officer, said in a statement.
• The retailer now expects first-quarter earnings of approximately 50 cents per share, compared with its previous view of 75 to 80 cents per share.
• J.C. Penney Co. said weakening consumer confidence has hurt its results as well as lower-than-expected sales through Easter.

This is why you are seeing rallies in the same tired groups that bet on 2nd half recovery. Would I buy retailers here? *Bleep* no. I'd be restarting short positions on individual names if I could. I'd submit retailers are where homebuilders were about a year ago - after a huge drop, hopes rise that "this is the bottom" and "it cannot get worse" and "we've seen the worse, time to get in" and we get these incessant hopeful rallies, that lead to another round of drops as reality washed over the dreamers in the coming months.

People in NYC do not understand the corrosive nature of inflation on the consumer. They do not understand the real struggles that are happening *now*, not to mention in 6 months when their "recovery" thesis happens, as inflation continues to ramp. They conveniently put aside that 70% of GDP is based on consumer - the same consumer who is going to be eaten by inflation, that they are cheering.

Energy Select SPDR (XLE), Oil Service HOLDRS (OIH)

Pete Najarian discussed the strength of solar and noted XLE and OIH fell in spite of oil’s rise to more than $107 a barrel. Steel “took it on the chin” in spite of a bullish week for the commodity. Concerning the economy in general, the group agreed the market was volatile, and Tim Seymour said equities were down, the fixed-income market may be lower, liquidity is absent and bearishness has returned to the financial sector.

Google (GOOG), Microsoft (MSFT), Intel (INTC), Nvidia (NVDA) Google’s performance was poor and Oracle was “a mess” on Thursday. Macke said the two are value stocks and likes MSFT if it dips. He would not rush to buy Intel, and expects earnings to be weak for tech for a while. Najarian would pay attention to NVDA because of intense options activity.

Q4 2007 Earnings Call

March 27, 2008 8:00 am ET

DSW, Inc. (DSW)

Q3 2007 Earnings Call

December 5, 2007, 8:00 am ET

DSW (DSW) primarily operates 230 retail footwear stores throughout the U.S. The company offers a wide selection of brand name and designer dress, casual, and athletic footwear for women and men in a self-service environment. In the interest of background, DSW shares are down over 40% in 2007, due to slowing same-store sales (‘SSS’) and lower margins on more clearance merchandise. On Friday October 26^th, DSW shares declined nearly 10% on lowered earnings guidance for 3Q07 and FY07 (annual EPS guidance was lowered to at least 10% below 2006 levels, implying earnings of no more than $1.33 per share in 2007). Analysts were expecting a reduction in guidance but the magnitude was surprising.

Given the correction, MADreturns™ believes the current price for DSW shares offers a good entry point for longer-term value investors and sees upside assuming strong new unit growth and a rebound in SSS in 2008.