26 August 2005

Let's Examine Some Stocks: DSW and J. Crew

The retail sector does not seem to be the place to be right now.

I say good. Just the place for me to look as I’m not investing today, but a couple of months down the road.

On that note, let’s take a look at a recently issued stock and an upcoming IPO in the apparel/shoes business.

DSW just hit a new low today, just a couple of days after IBD featuring the company in its The New America section from Wednesday. Here are some promising excerpts:

As an off-price retailer, DSW can
buy well-known brands and designer
labels at low prices because of relationships
it’s developed with vendors
since its start in 1997. It has ties
with 300 leading brands, including
In its early years DSW mainly
bought overstocked items and year old
goods. That changed as its vendor
relationships strengthened.
Now 80% of its goods are current
and in season, says Chief Financial
Officer Douglas Probst.
To make sure customers get fresh
goods, DSW delivers a new crop of
shoes to stores every week.

The company mainly competes
with department stores. A typical
DSW store carries 30,000 pairs of
shoes in 2,000 styles. That’s twice
the assortment you’ll find at most department
stores, Probst says.
This “thrill of the hunt” strategy is
key to DSW’s success, experts say.

DSW also encourages customer
loyalty. Its “reward your style” program
offers added savings to frequent
shoppers. The program has
5.5 million members. About 60% of
DSW’s annual sales come from program members,
Probst says.

Earnings for the quarter
are scheduled to be reported on
Sept. 7.
Analysts polled by First Call see
full-year earnings rising 18% to 99
cents a share. They expect profit to
move up 22% to $1.21 onf iscal 2006.
DSW’s stock performance has
been pretty sketchy. Shares opened
at 19 on June 29, bobbed up and
down over the next three weeks,
then peaked at 27.50 on July 25.The
stock has staggered since then and
trades near 25.
The company’s growth strategy involves
opening about 30 stores a
year, including this year.
“We could open 30 stores a year
for the next seven years and not be
at 400, which is at least the number
of stores the DSW concept could
have,” said Probst.
He sees strong expansion potential
in the Southwest and California.
“They still have a lot of landscape
out there to cover,” said Retail Forward’s
Putnam. “The chain isn’t
that big at this point, and there are
lots of location alternatives where
they can get good growth.”

On the anecdotal side of things, a friend and former co-worker, thedigitalbuffalo found a wonderful pair of designer shoes cheap at DSW. I recovered from a traumatic J. Crew shoe experience by shopping there, procuring a stylish pair of Tommy Hilfiger loafers at their new Union Square location.

I am putting DSW on my watch list, eagerly anticipating their 2Q conference call on September 7. If you want to join in on the listen, here’s how:

The conference call can be accessed two ways:
- Live over the internet: log on to the web at www.DSWshoe.com
- Call in: please dial 866-202-4683 and reference passcode
# 66869384 at least 5 minutes prior to the scheduled start

Now onto a company I am far less interested in, J.Crew. They must be
thrilled with the retail sector's recent performance, what with their
upcoming IPO. Personally, I have not been particularly happy with the
quality and longevity of J.Crew's clothing and shoes. As a prep who
wears argyle socks everywhere but the gym and the beach, their
clothing should appeal to me, but also should survive more than half a
season. This stuff should be timeless, and last just as long. My two J.Crew
t-shirts I bought in 1991 in Center City, Philadelphia look better than the
J.Crew sweaters I purchased in the middle of last winter.

I mentioned a traumatic shoe experience above, so here's the riveting
story: bought two pairs of shoes that began to disintegrate after a
few weeks of wear. The rubber seal piece between the leather upper and
the sole had the appearance of being stitched on, but really was glued
on, and only barely. However, they took them back and credited my
account; I bet every purchaser of these shoes was having the same
problem I had. So the shoes sucked, but the customer service was
smooth and professional. Reminded me of the Saturn division of GM having great customer service, in the business of selling crap cars?

1 comment:

Jonathan V. Last said...

Anecdotally, DSW is at least being smart about where it's expanding.

The two latest DSW's that I'm familiar with are in Arlington, Virginia and Moorestown, New Jersey. The DSW in Arlington is in a high-end retail-entertainment-residential complex that's next to a major shopping mall. It's a well-designed property that seems built for long-term success with a good mix of shopping (Harris Teeter, Ann Taylor, Hudson Trail Outfitters, etc.), entertainment (Wolfgang Puck, Maggie Moo's, Thaiphoon, etc.), and high-end apartments built on top of these businesses.

The DSW recently opened in Moorestown is in a new Super Strip center, which is anchored around a Target Greatland and NJ's first Wegman's, and about 20 other retailers and casual eateries (Panera, etc.). Knowing how carefully Wegman's plans its moves, this seems like another smart place to put down roots.