DSW: The Key Issue

 

Solid number out of DSW capping off results out of the family footwear space. But looking forward, the key issue for us here is that this is a company that we think is average quality at best that is growing into more expensive real estate. And even though it is getting better property deals given the current environment, it still needs to comp at 2-3x the rate of its peers to leverage SG&A (this is the Dick’s Sporting Goods of shoes). It has been comping better than 10%+ for seven quarters now. Was DSW lucky, or was it good? Probably a little of both. But what we know is that another quarter out DSW definitely HAS TO be good. VERY good. We’re not willing to give this one the benefit of the doubt. The business model is simply too complex and inefficient, and too many things are going its way right now.

 

Here are a few additional callouts from the quarter:

  • The driver here continues to be comps coming in up +12.3% coupled with gross margin expansion. With comps up LDD in the 1H of F11, the company’s updated outlook for full-year comps up MSD implies a sharp 2H deceleration with 2-year comps coming in 400-500bps.
  • DSW was the only company in the family footwear space to post gross margin expansion (+240bps) in Q2 despite LDD product cost increases across the space. We suspect these results were driven by continued success in growing accessories and private brands.
  • Inventory growth was modest up +3% on +15% sales growth resulting in a positive sales/inventory spread for the first time in the last five quarters despite higher costs. In fact, DSW is the only company in the space in the upper right quadrant with PSS, BWS, and SCVL all currently in the bottom right.
  • The company updated its outlook for the full-year taking EPS guidance up only $0.05 to $2.70-$2.85 despite a $0.11 beat suggesting softer 2H expectations. It will be interesting to hear how the company is planning for the 2H as the leader of the family footwear pack.

 

DSW: The Key Issue - FW FamilyFW CompTable 8 11

 

DSW: The Key Issue - FW FamilyFW CompCharts 8 11

 

DSW: The Key Issue - FW FamilyFW SIGMA 8 11

 

 


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more