DSW, Inc. (DSW)

The fast-growing shoe seller which is aggressively expanding its store base has a simple strategy to grow. It plans to open store at a rapid pace and desires to be all over the place. The management has more than 100 sites in the hit list mainly expected in California, Florida, Texas and the Northeast which will enable it to broaden the operations.





For the quarter ended February, revenues increased 12% to $1.28 billion reflecting increase of 24 new DSW stores and 117 non-affiliated leased shoe departments besides five Filene's basement leased shoe departments. Net income rose by an astounding 76% to $65.5 million led by improved gross margin.





The ever-growing discount shoe chain, which already operates well over 200 stores in 35 states, is set to report first-quarter earnings on June 6. The company continues to expand, as there are plans for 30 new stores per year through 2010. Further it plans to make significant investments in future growth initiatives during the year that are expected to be accretive to earnings in 2008 and beyond. All this leads to higher expectations for the first quarter of fiscal 2007. Moreover it has beaten market expectations each of the last 4 quarters, which creates further optimism. Besides it estimates fiscal 2007 EPS in the range of $1.63 to $1.68 led by growth in comparable store sales of around 3-5% and new store openings.





One reason to worry is the volatility observed by the stock in recent past which has created mixed sentiments in the market. Currently, over 39% of the stock's total float is sold short. But this is more than enough to fuel a short-covering rally should the company report a positive surprise on Wednesday. The results of the first quarter earnings are sure to determine the near future of DSW shares but there are more chances of an upswing considering the store openings, recent results as well as the huge short positions.