Tuesday, November 23, 2010

Bookkeeping: Selling 1/3rd of DSW (DSW) on Nice Results; Slight Increase in Yearly EPS Estimates

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Since the purchase of shoe retailer DSW (DSW) in early November, the stock has rallied some 15%+ - not too bad for 3 weeks considering this is not a stock in the "fast money" group. The stock was a bit extended when I bought it, hence I made only a moderate position size - preferring to buy on a pullback.  But when the pullback came last week I did not want to pile in ahead of an earnings reports, so I'm selling down a relatively sparse position size (under 1.5% exposure) by 1/3rd this morning around $41.25 to lock in a portion of my profits.  While the stock is 'breaking out', it is also is nowhere near any support level now - tough to see it continue to run considering it does not sell movies over the internets or "does fancy stuff on the cloud".



I continue to like the space and indeed all retail that caters to the high end or the low end (not the disappearing American middle class).

With 7M American households no longer making a mortgage payment but living 'rent free', the retail space continues to get a self funded stimulus that the savers of America are paying for via 'transfer payment to their neighbors'.  (Banks taking forever to foreclose because they are allowed to 'mark to myth' on their balance sheet, Fed keeping rates at 0% so banks can make the 'spread' between Fed fund rates and what they lend money at, to make up for current and future mortgage losses, savers offered zilch on CD and savings rates). [Nov 5, 2010: The Case for Retail - and Shoes Specifically]    At this point I can only turn negative on the U.S. consumer when ... ironically... the foreclosure crisis comes to an end.   At that point millions of households will once again have to pay for a roof over their head, and all the money not going to banks to pay for mortgages will disappear from the mall, or nail salon, or restaurants, or car dealerships, or cruise ships.  Only in Cramerica must I use this sort of logic!

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For the quarter, DSW estimates were $489M and $0.75 EPS.  (Full report here)

  • DSW Inc., a leading branded footwear specialty retailer, announced net income of $35.5 million on net sales of$489.3 million for the third quarter ended October 30, 2010, compared with net income of $26.6 million on net sales of $444.6 million for the quarter ended October 31, 2009. 
  • Same store sales increased 10.1% for the comparable period versus an increase of 8.7% last year. 
  • Diluted earnings per share were $0.79 for the third quarter of fiscal 2010 compared with diluted earnings per share of $0.60 last year.

Guidance
  • As a result of better-than-expected sales performance for the first three weeks of the fiscal fourth quarter, the Company now estimates an annual comparable store sales increase of approximately 12% and annual diluted earnings per share of approximately $2.30 to $2.40 for fiscal 2010. 
  • This is updated from the Company's previous estimate of an annual comparable store sales increase of approximately 11% and annual diluted earnings per share of approximately $2.20 to $2.30 for fiscal 2010. Fiscal 2009 annual diluted earnings per share were $1.23.
Analysts were in for $2.28 for the year.

DSW Inc. is a leading branded footwear specialty retailer that offers a wide selection of brand name and designer dress, casual and athletic footwear for women and men. As of November 23, 2010, DSW operated 313 stores in 39 states

Long DSW in fund; no personal position

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