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Analysts Laud Progress at DSW

Insiders applaud work of recently appointed CEO Michael MacDonald.

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LOS ANGELES — Last week, analysts applauded the leadership of DSW Inc.’s recently appointed president and CEO, Michael MacDonald, despite an earnings decline during the second quarter.

“[DSW] did something in this quarter that it hasn’t done in a long time, which is to batten down the hatches on costs,” said Christopher Svezia, an analyst for Susquehanna Financial Group. “That was certainly encouraging. Some of these things were in place before Mike got there, but he seems to have a much more cost-conscious approach to running the business day in and day out.”

R.J. Jones, an analyst at Ragen Mackenzie, a division of Wells Fargo, agreed that MacDonald, who joined DSW in April, has introduced a practicality that could position the company for stronger times ahead.

“He’s laid out a number of great ideas, and [he’s] orienting his teams to attack the ones that have the most immediate value,” Jones said. “He’s the right leader at this time. ... He’s not reinventing anything, but he’s making the company better at sales and customer service and not expending energy in places where it’s not going to help right now.”

During the second quarter, the company’s profit dipped 31 percent. For the three months ended Aug. 1, the Columbus, Ohio-based company reported a net income of $7.6 million, or 17 cents a share, compared with $11 million, or 25 cents, in the second quarter of 2008. The results bested expectations of analysts polled by Yahoo Finance by 6 cents.

Sales increased 3 percent to $369.5 million from $357.2 million in the year-ago period. Same-store sales dropped 2.9 percent, compared with a 6.9 percent dip in the second quarter of 2008.

“I was somewhat encouraged by the modest improvement in our comp-store sales performance, particularly in the DSW segment,” MacDonald said during a conference call with investors and analysts. “But we continue to see a pretty challenging external environment for the balance of the year.”

Seasonal sandals and early demand for fall boots fueled footwear sales during the quarter. Pumps and comfort shoes were also sales drivers, but men’s shoes remained weak. “We continue to believe that economic conditions are affecting the men’s business more than women’s,” MacDonald said.

The CEO went on to tout the success of the 1-year-old DSW.com site. MacDonald said DSW now has a more thorough understanding of the online consumer, product preferences and the interplay between the online store and DSW’s brick-and-mortar locations.

“We’ve been able to do some customer-level analysis to understand where the business is coming from,” he said. “We believe that DSW.com has plenty of growth potential as we adjust assortments, promotions and the operating characteristics.”

MacDonald added that the company remains committed to the strategy of providing a trend-right product assortment, value and convenience, and pointed to an action plan to better execute on those core areas of the business. He declined to outline the specifics, but said consumers would begin seeing elements of the new initiative this fall.

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