Is The Market Pricing DSW Inc. Fairly?

DSW: DSW logo
DSW
DSW

DSW Designer Shoe Warehouse (NYSE: DSW), known as a leading retailer of footwear and accessory brands, offers a range of dress, casual, and athletic footwear and accessories for women, men, and kids.  DSW reported decent growth in the past few years. During the recent earnings the company recorded a 3.3% increase for the full year sales for 2017 at $2.79 billion from $2.71 billion for fiscal 2016. This increase in total net sales was driven by non-comparable store sales and an additional week of sales included in fiscal 2017, partially offset by the 0.4% decrease in comparable sales. The company operates through the DSW and Affiliated Business Group segments where  DSW’s gross profit as a percentage of net sales was 28.2%, a decrease of 30 basis points from 28.5% in the previous year. The decrease in the gross profit rate was primarily driven by the additional write-downs of Ebuys inventory as a result of their decision to exit the business.

Net income saw a dip for fiscal 2017 recorded at $67.3 million, or $0.83 per diluted share, which included net after-tax charges of $55.5 million, primarily related to impairment charges, inventory write-downs, amortization of intangibles, and the change in fair value of the contingent consideration liability associated with Ebuys, restructuring costs, foreign exchange net losses, and the net tax expense impact of implementing the U.S. Tax Reform.
We anticipate the company to post better results in the coming future. Our price estimate of $23.86 is dependent on FY18 sales forecast of $2.81 bn, up 0.6% from $2.79 bn last fiscal. We also expect DSW’s net income margin to improve to 4.7% from 2.4% in FY 2017.  We expect a Price-to-Earnings multiple of 14.54 and an average share count of 80.6 mn giving a share price estimate of $23.86, roughly 8% above its current market price.

Our revenue estimate of $2.81 bn for FY2018 is arrived at by projecting revenues for each individual segment of the Company: DSW Segment and Others that primarily represents net sales for ABG and Ebuys, and following historical growth trends and the percentage contribution of each segment to total to the company’s top line.

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The P/E multiple is also forecast taking into account the historical data and its likely trend. Detailed steps to arrive at our price estimate are outlined in our interactive dashboardYou can modify our assumptions to arrive at your own price estimate for the company.

 

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