Editor's note: The prior version of this article neglected to note that Jay Schottenstein is the chairman and CEO of DSW. We have corrected the article and regret the error.
Investors cheered at the news, sending DSW shares up nearly 11% on Friday. While the pop certainly comes as a late Christmas present for shareholders, it barely scratches the surface on the precipitous plunge DSW has faced over the past year. Dealing with lower margins and slightly declining same-store sales growth, DSW shares fell more than 50% last year, a disappointing performance indeed when compared to the 26% rise in the Dow Jones U.S. Footwear Index during the same period.
What is behind Schottenstein's buying spree? He certainly may see the huge price decline over the past year as excessive and an opportunity for some bottom-fishing. DSW shares currently trade at roughly 15 times estimated 2008 earnings, compared to other shoe retailers, such as Foot Locker
With a bulletproof balance sheet that sports $140 million in cash and no long-term debt, DSW also looks well-suited to pull through what could be a tough year for retailers, as American consumers take a step back from their hefty spending days. In a business environment with a debt market all but frozen in place, being so well-capitalized will certainly bode well for DSW. Add in a history of consistent profitability and a near doubling of net income in the past three years, and DSW starts to look like a baby thrown out with the bathwater.
DSW isn't the only company Schottenstein appears interested in. Since the end of August, Schottenstein has pumped roughly $23 million into the company he serves as Chairman for, American Eagle Outfitters. American Eagle, similarly to DSW, also has taken quite a beating in the past year, currently trading near its 52-week low.
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Fool contributor Morgan Housel does not own shares in any of the companies mentioned in this article. He appreciates your questions, comments, and complaints. The Fool's disclosure policy is all about investors writing for investors.