Today’s news: DSW (DSW) joins the Buy Low Opportunities Portfolio.
DSW Inc. (DSW – yield 4.2%) is a footwear, accessories and apparel retailer that joins the Buy Low Opportunities Portfolio today. DSW has been a favorite apparel retailer of mine due to its excellent growth and value fundamentals, along with Abercrombie & Fitch (ANF), Guess? (GES) and Skechers (SKX). The stock is also featured in my Top Ten Stocks to Buy & Hold for 2019 portfolio, which is up 11.65% year-to-date, excluding dividends.
The company operates Designer Shoe Warehouses and a variety of other brands of retail stores, totaling nearly 1,000 locations in 44 U.S. states and Canada, in addition to ecommerce at DSW.com. In Oct. 2018, DSW partnered with Authentic Brands Group LLC in order to acquire the operations and several intellectual property rights of Camuto Group, which has strength in soft goods product design and brand development.
DSW reported fourth-quarter results this morning (January year end). The company achieved record annual revenue of $3.2 billion and exceeded the market’s same-store sales estimates. As often happens, news stories focused on one number within the report that missed consensus estimates, and the stock fell in pre-market trading. I’m hoping that this bulletin lands in your lap before the stock rebounds, which could happen as soon as this afternoon.
Chief Executive Officer Roger Rawlins stated, “Fiscal 2018 was one of the best years in our Company’s history from a comparable sales and earnings growth standpoint. We crossed the $3 billion revenue threshold for the first time and drove a +6% increase in comparable sales as we strengthened connections with our customers. We built a compelling product assortment, including the expansion of DSW Kids, a differentiated services offering with our W Nail Bar partnership, and the relaunch of our award-winning loyalty program. At the same time, we strategically positioned our Company to grow share and enhance profitability through transformative acquisitions, creating an infrastructure that positions us to be a significant force in the footwear industry for years to come.”
DSW is hosting an Investor Day today in which the company will outline a three-year plan. It’s been my experience that Investor Day events, especially when they include an outline of new products or corporate strategy, tend to be very bullish for the stock. The audience is full of Wall Street analysts who take the new information and write it up in research reports that go to their institutional investors all over the globe. If the company is faring well, as is DSW, the research reports are catalysts for new stock purchases that serve to drive the share price upward.
DSW’s annual revenue rose approximately 14% in fiscal 2019 (January year end). Prior to today’s earnings report, consensus estimates forecast revenue to rise another 15% in fiscal 2020, and EPS to rise 16%. At a share price of 23.60 (in today’s pre-market trading), the 2020 P/E is 12.2, and the dividend yield is 4.2%. All of these numbers will change in the coming days as the stock bounces around (I’m certainly expecting a quick rebound) and as analysts revise forecasts based on information that they glean from today’s Investor Day event.
The company has also repurchased shares consistently for many years, and routinely maintains low debt levels.
DSW is a small-cap stock that initially rose 23% from its December lows, then gave back most of its gains. There’s upside price resistance at 30, and I would not be surprised if the stock broke past 30 in the next few months. Buy DSW now for both short-term and long-term capital gains, and the hefty dividend yield. Strong Buy.