DSW: Earnings Preview

Footwear and accessories retailer DSW (NYSE: DSW  ) is expected to report third-quarter results on Tuesday. The company started the year rough with a comparable-store sales decrease of 2.4% in the first quarter. But the slip seems a temporary misalignment of inventory due to colder-than-expected weather and comps rebounded by the second quarter. Will the third quarter show further improvement? 

DSW stocks an assortment of high- and low-end brands that include everything from luxury stiletto heels to running shoes. The diverse stock puts the company in competition with both the higher-end offerings of Macy's and the athletic focus of Foot Locker (NYSE: FL  ) . 

Here's what to watch in DSW's earnings report. 

Quarter estimates -- and results -- to beat 
Analysts estimate revenue of $658 million and earnings per share of $0.48. DSW has beat estimates in four of the past five quarters but missed revenue in two -- including last quarter.

Investors and analysts will judge DSW's third-quarter performance based on last year's third quarter. But there's an important change to note preceding this quarter's release. DSW effected a 2-for-1 stock split at the beginning of the month  So the company will report third-quarter results -- and its comparable results from last year -- on a split-adjusted basis.

In the third quarter of last year, DSW reported revenue of $593 million, which represented year-over-year growth of nearly 12%, and EPS of $0.51. Comparable-store sales were up 6.3% -- up from about 5% in the prior year. Inventories were up nearly 12% to $422 million.

The second-quarter report featured revenue of $558 million -- below the $568 million forecast -- and EPS at $0.49. Sales were up more than 9% compared to the prior year's period and comps were up 4.4%. Inventories were up 10% to $405 million.

Competitor performance 
Comparing Macy's to DSW is a bit apples-to-oranges since Macy's has a wider range of products. But Foot Locker has a similar footwear focus. 

Foot Locker reported its third-quarter results on Friday. Analysts had estimated revenue of $1.6 billion and EPS of $0.66. Foot Locker reported $1.6 billion in revenue -- more than 6% growth over the prior year -- and EPS of $0.70. Comps were up 4%.  

Foolish final thoughts
DSW has a history of beating estimates, and the few misses were narrow ones. And the third quarter didn't have unexpected weather that could've tanked comps due to improper inventory, as was the case in the first quarter. All in all, it looks like this earnings report may be a good one, but we'll have to stay tuned to find out. 

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