DSW: Running Towards Another Earnings Beat?

DSW (NYSE: DSW  ) is scheduled to release third quarter earnings for fiscal 2014 on Nov. 26. This has been a high flying stock in 2013, rising over 40% year-to-date. Let's take a look and see if we should be buying before the report is released or if we should wait to see what the company has to say.

The shoe warehouse

DSW, or the Designer Shoe Warehouse, is a footwear and accessories speciality retailer in the United States. Its products include all types of shoes, boots, and sandals, as well as handbags and accessories like hosiery. The company was founded in 1917 and went public in June of 2005.

Last time out

On Aug. 27, DSW released second quarter results. Here are a few key statistics from the report in a year-over-year comparison:

  • Earnings per share increased 47% to $0.485
  • Net sales rose 9.7% to $562 million
  • Comparable-store sales increased 4.4%

(2Q 2013 EPS adjusted for 2:1 stock split on 11/4/13) 

These better-than-expected results allowed the company to increase its full-year outlook; the new estimate calls for earnings per share of $3.60-$3.80 versus the previous estimate of $3.40-$3.60. These projections would call for revenue growth of 5%-7% and comparable-store growth in the mid-single digits. An earnings beat and raised guidance is about as good as a quarter gets in today's market.

Expectations due out

Third quarter results for fiscal 2014 are set to be released on Nov. 26 before the market opens. Here are the current consensus analyst estimates:

Metric Expected 3Q 2013
Earnings Per Share  $0.58  $0.51
Revenue  $647.2 million  $592.7 million

(3Q 2013 EPS adjusted for 2:1 stock split on 11/4/13)

At these estimates, earnings per share are expected to grow 13.7% and revenue is expected to rise 9.2% year-over-year. Aside from these key metrics, two of the most important statistics to watch will be comparable-store sales and guidance for the next quarter. Comparable store sales rose 4.4% last quarter and 6.3% a year ago, so it would be great to see another increase of over 4%.

When it comes to guidance, I am interested in hearing management's predictions for the upcoming holiday season; raised outlook for the quarter would be the best case scenario, but a simple increased sales projection would cause the stock to jump. Overall, I expect DSW to report solid results that meet or narrowly exceed expectations and favorable guidance for the fourth quarter.

Competitors due out

Shoe Carnival (NASDAQ: SCVL  )  is one of DSW's largest competitors in the United States. It is a footwear retailer that offers both brand names and private label products, in a very unique shopping atmosphere. Its stores feature games, contests, neon lighting and signs, and modern music, to make for an "energized" shopping experience. Some shoppers may not enjoy this type of experience, but it puts the "carnival" in Shoe Carnival.

The company is set to release third quarter results on December 2, so DSW's report could be a direct indicator of things to come. Last time it reported, Shoe Carnival exceeded expectations on both the top and bottom lines. However, earnings are expected to fall 15% and revenue is expected to decline 1.5% in the upcoming quarter.

The negative growth should send the stock lower after the report, so if investors have to own it they can wait for the weakness to buy; however, we want to invest in companies that are showing growth in earnings, not declines, so I would stay away from this one for now.

Can Brown make you green?

Brown Shoe Co. (NYSE: BWS  ) is another large competitor to DSW, operating its retail stores under the name Famous Footwear. It is a global footwear company that also sells accessories like hosiery, backpacks, tote bags, and gym-sacks.

The company is scheduled to release earnings on the same day as DSW, Nov. 26, before the market opens. Brown Shoe reported record earnings per share and operating margin in August and increased its full-year outlook. However, management stated, "For the back half of the year, we are maintaing a realistic but cautious stance, as we continue to monitor the macro retail environment."

With this said, analysts project earnings for the upcoming quarter to decline 2.6% or rise as much as 3.3% and revenue is expected to fall 3%-3.6%. Both Shoe Carnival and Brown Shoe Co. have analysts expecting weak results, while DSW sees strength, making for an easy choice of which company to consider for an investment.

The Foolish bottom line

DSW is a great American company and it is the growing titan of the footwear retail industry. It has been on fire in 2013 and it has widely outperformed the overall market. Value investors should look to initiate a position on any weakness going into its quarterly report or on any decline after the release. Take a look and see if your portfolio could use the growth and retail exposure that DSW can provide. 


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Related Tickers

10/22/2014 4:00 PM
DSW $30.54 Down -0.29 -0.94%
DSW, Inc. CAPS Rating: ****
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Brown Shoe Company… CAPS Rating: **
SCVL $17.74 Down -0.25 -1.39%
Shoe Carnival, Inc… CAPS Rating: *****

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