Brown Shoe (NYSE:BWS) and DSW (NYSE:DSW) are two of the largest footwear retailers in the world, with over 1,600 stores and numerous e-commerce sites between them. Both companies have recently released their first-quarter earnings and the stocks have reacted by moving in different directions. Let's compare the companies' results and outlooks on the rest of the fiscal year to determine which had the better quarter and could provide the highest returns for investors going forward.

Breaking down the quarterly reports

Images

Source: Brown Shoe's Facebook

On May 28, Brown Shoe released its first-quarter report and the results were mixed compared to analysts' expectations; here's a breakdown and year-over-year comparison:

MetricReportedExpected
Earnings Per Share $0.35 $0.31
Revenue $591.16 million $592.90 million

Source: Benzinga

  • Earnings per share increased 9.4%
  • Revenue increased 0.4%, including:
    • 0.7% increase at Famous Footwear stores
    • 5.6% increase in wholesale segment 
  • Comparable-store sales increased 1.3% at Famous Footwear locations
  • Gross profit increased 1% to $242.3 million
  • Gross margin expanded 20 basis points to 41%
  • Operating profit increased 37.1% to $28.7 million
  • Operating margin expanded 130 basis points to 4.9%
  • Dividend update: On May 29, Brown Shoe announced that it would be maintaining its quarterly dividend of $0.07 and it will pay this on July 1 to shareholders of record at the close of business on June 18. 
  • Updated store count: During the first quarter there were 17 net store closures, which brought Brown Shoe's total store count down to 1,206 worldwide.

Screen Shot

Source: DSW

DSW released its first-quarter report on May 28 and the results came in well below analysts' expectations; here's a breakdown and year-over-year comparison:

MetricReportedExpected
Earnings Per Share $0.42 $0.48
Revenue $598.95 million $624.57 million

Source: Benzinga

  • Earnings per share decreased 16%
  • Revenue decreased 0.4%, including:
    • 0.7% decrease at DSW stores
    • 4.3% increase in wholesale segment
  • Comparable-store sales decreased 4% at DSW locations
  • Gross profit increased 2.7% to $188.0 million
  • Gross margin expanded 100 basis points to 31.4%
  • Operating profit increased 12.8% to $61.3 million
  • Operating margin expanded 120 basis points to 10.2%
  • Dividend update: On May 27, DSW announced that it would be maintaining its quarterly dividend of $0.1875 and it will pay this on June 30 to shareholders of record at the close of business on June 20. 
  • Updated store count: During the first quarter DSW opened 13 net new locations, which brought its total store count to 410 in the United States and Puerto Rico. 

What will the rest of fiscal 2014 hold?

Screen Shot

Source: Famous Footwear

As a result of the stronger-than-expected first quarter, Brown Shoe increased its full-year earnings per share outlook. The company now expects earnings per share in the range of $1.47-$1.57, which represents growth of 4.3%-11.3% from the $1.41 earned in fiscal 2013; this is up from its previous estimated range of $1.45-$1.55. Brown Shoe added that it continues to expect revenue in the range of $2.58 billion-$2.60 billion, an increase of 2.8%-3.6%, and margin expansion of approximately 10 basis points compared to fiscal 2013.

Sustainability

Source: DSW

Following its weak first quarter, DSW announced a reduction in its full-year earnings per share outlook. The company now anticipates adjusted earnings per share in the range of $1.45-$1.60; this is a decline of 3%-12.1% from the $1.65 earned in fiscal 2013, and this is down substantially from its previous estimate of $1.80-$1.95. DSW added that the new guidance assumes low single-digit percentage declines in comparable-store sales and adjusted revenue growth in the low single-digit percentage range compared to fiscal 2013.

Screen Shot

Source: Brown Shoe

And the winner is...
After reviewing the companies' earnings results and outlooks on the rest of the year, the winner of this match-up is Brown Shoe Company; it performed much better in most key financial categories and its outlook on the rest of fiscal 2014 calls for more of the same, while DSW expects continued weakness.

On the day of the company's earnings release, Brown Shoe's stock jumped 10.82% higher, but it has since come down over 5%. I believe this represents a buying opportunity for Foolish investors who seek an entry into the footwear industry; if you are one of those investors, you should take a deeper look into Brown Shoe and strongly consider initiating a position right now and adding to it on any further weakness provided by the market.

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Joseph Solitro has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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