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DSW Stock Tumbles 13% on Camuto Group Takeover Announcement

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DSW, Inc. unveiled a deal to purchase operations of renowned product design and brand development company, Camuto Group. Further, DSW inked a contract to collaborate with Authentic Brands Group to buy several intellectual property rights of Camuto Group, which is likely to receive nearly $375 million.

However, we note that DSW’s shares tumbled 12.8% on the news. Per various media sources, this buyout is likely to weigh on the company’s earnings in the near term. This seems to have taken a toll on investors as they are somewhat worried about tariff-related headwinds, given Camuto Group’s exposure to China.

Nevertheless, the acquisition is likely to be accretive to DSW’s revenues and margins in the long run, retaining the company’s solid past performance. Notably, this Zacks Rank #1 (Strong Buy) stock has rallied 29.3% in the past six months, against the industry’s decline of 4.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.


DSW-Camuto Group Deal in Detail

Camuto Group is recognized for the successful Vince Camuto brand and the footwear licenses of Jessica Simpson and Lucky Brand. Post the deal, Camuto Group will retain its existing headquarters in Connecticut. Also, the company will independently manage its wholesale and third-party design relationships.

Per the financial terms of the deal, DSW will pay roughly $200 million to buy Camuto Group's production, sourcing and design infrastructure, which will include operations in China and Brazil. Additionally, DSW will be in possession of the licensing rights for the Jessica Simpson footwear business, and the footwear and handbag licenses for Lucky Brand and Max Studio. It will also get joint venture participation in the ED Ellen DeGeneres and Mercedes Castillo brands.

Further, DSW will buy 40% stake in the intellectual property of Camuto Group's proprietary brands for $56 million, while the remaining will be acquired by Authentic Brands. These proprietary brands include Vince Camuto, Enzo Angiolini Sole Society, Louise et Cie and CC Corso Como, among others. The deal aims at licensing footwear, handbags and jewelry brands, and developing new lifestyle products.  Subject to customary closing conditions, the deal is expected to close at the beginning of the fiscal fourth quarter. DSW will utilize its cash in hand and existing credit facility to finance this deal.

With this acquisition, DSW is likely to emerge as one of the largest footwear companies in North America. Notably, the deal is expected to boost DSW’s revenues by providing it with a larger market. Also, industry experts believe that DSW will be able to expand its customer base as Camuto Group’s products are sold at the Macy’s (M - Free Report) , Nordstrom (JWN - Free Report) and Dillards (DDS - Free Report) stores.

Further, Camuto Group's buyout is likely to lead DSW to an impressive brand portfolio with solid prospects in the DTC and wholesale channels. Apart from this, joining hands with Authentic Brands will help DSW leverage its brand management and broad marketing skills.

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