Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



DSW: Mixed Earnings and Weak Outlook Send Shares Lower

DSW  (NYSE: DSW  ) , the footwear retailer, has just released its fourth-quarter report to complete fiscal 2013. The results were mixed in comparison with expectations which caused DSW's shares to move over 3% lower in the trading day. Let's take a look and decide if this decline is our opportunity to buy or if we should avoid this stock for now.

Source: DSW Facebook

The quarterly report
DSW released its fourth-quarter results before the market opened on March 18; here's a breakdown of the results and a year-over-year comparison:

Metric Reported Expected
Earnings Per Share $0.31 $0.29
Revenue $572.27 million $590.23 million

Source: Benzinga

Source: DSW's Facebook

DSW's earnings per share decreased 11.4% and revenue decreased 3.7% year-over-year, as comparable-store sales remained flat. Gross profit fell 6.8% to $159.98 million and the gross margin took a slight hit, declining 90 basis points to 28%. Four new stores opened up during the quarter, bringing DSW's new total to 397 across 42 states, the District of Columbia, and Puerto Rico.

Key statistics aside, the highlight of the quarter came when DSW raised its dividend by 50%; the company will now pay out $0.1875 each quarter, with the first payment coming on April 15. Overall, it was a pretty dismal quarter for the shoe retailer and its outlook on fiscal 2014 did not help the situation...

Source: DSW

2014: Little growth seen here
In the report, DSW also provided its guidance for fiscal 2014; the company expects earnings per share in the range of $1.87-$2.02, excluding certain expenses, on revenue of $2.51 billion-$2.53 billion; these estimates fell below analysts' expectations, which called for earnings per share of $2.09 on revenue of $2.57 billion.

DSW added that it plans to open about 35 new stores, which will push its total count to approximately 432, and it now sees its long-term store build-out potential in the range of 500-550 stores. In summary, this outlook does not call for much growth during 2014, but the expansion plans would set DSW up for future success; however, I believe we should invest in companies that can outperform the market both today and in the future.

With the earnings and outlook numbers in hand, I believe the market reacted correctly by sending shares lower. The dividend hike came as the only true positive in the report, but that is not enough to create bullish sentiment.

How has the competition fared?
Brown Shoe Co.  (NYSE: CAL  ) , the company behind footwear retailers that include Famous Footwear and, is one of DSW's largest competitors and it recently released its quarterly results as well. Here's what the company accomplished from its fourth-quarter report released on March 14:

Metric Reported Expected
Earnings Per Share $0.14 $0.10
Revenue $600.0 million $622.6 million

Source: S&P Capital IQ

Source: Famous Footwear Blog

Brown Shoe's earnings per share increased 55.6% and revenue decreased 3% year-over-year, as same-store sales at Famous Footwear declined 1.8%. Gross profit decreased 2.4% to $241.4 million, but the gross margin showed strength by expanding 20 basis points to 40.2%. Brown Shoe also gave its guidance on fiscal 2014, calling for earnings growth of 3%-10% and revenue growth of 2.7%-3.6%; this missed analysts' expectations, which called for earnings growth of 14.9% and revenue growth of 4%.

With both DSW and Brown Shoe showing slowed growth in the fourth quarter and both companies providing weak outlooks on the year ahead, clearly footwear retailers are simply seeing slowed traffic. This is not a good sign for either company or their competitors and investors should take this as a warning when considering an investment here; the reward may be high if things turn around, but I believe the risk is not necessary considering the strength we have seen in other industries, such as the quick-serve restaurant industry.

The Foolish bottom line 
DSW's dismal quarterly results and outlook on 2014 have sent its shares lower and I believe the market reacted correctly. DSW was not alone in its struggles during the quarter as Brown Shoe reported weak results as well, and this makes me believe that the footwear retail industry is too frail to invest in right now. Foolish investors should simply monitor the situation going forward and review the next set of quarterly results to determine if conditions have changed.

The Motley Fool's Best of the Best
There’s a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2879927, ~/Articles/ArticleHandler.aspx, 8/30/2015 8:02:03 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Joseph Solitro

A fan of innovation, strong fundamentals, and all things baseball. Follow on Twitter @JoeySolitro. Fool on!

Today's Market

updated 1 day ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:03 PM
DSW $29.02 Down -0.15 -0.51%
DSW, Inc. CAPS Rating: ****
CAL $33.23 Up +1.40 +4.40%
Caleres Inc. CAPS Rating: **