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Why DSW Inc. Shares Tumbled Today

By Jeremy Bowman - May 24, 2016 at 4:50PM

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The shoe retailer hit the pavement on an underwhelming earnings report.

What: Shares of DSW Inc. (DBI -3.02%) were getting kicked in the shins today after the footwear retailer missed estimates in its first-quarter earnings report and lowered its guidance. By 1:30 p.m. EDT, the stock was down 11.1%.

So what: Tracking with troubles across much of the apparel industry, DSW turned in a weak quarter. Its per-share profit of $0.40 was short of expectations of $0.46, and same-store sales, a key metric in the industry, fell 1.6%. Overall revenue grew just 3.9% to $681.3 million, missing the analyst consensus at $697.7. million.

CEO Roger Rawlins echoed the refrain of his peers, noting a "challenging retail environment." He elaborated, saying, "Over the past three years, we have invested heavily in technology, stores, marketing and support services. These investments have driven sales, but we haven't grown our bottom line. We have begun an assessment of our cost structure to improve earnings and reinforce our competitive position in a rapidly changing environment."

Now what: With a statement like that, layoffs or store closures could be on the way. The company also scaled back its guidance for the year, projecting earnings per share of $1.32 to $1.42 all the way down from $1.54 to $1.64. It also sees comparable sales sliding 1% to 2%, a reverse from its original forecast of 1% to 2% growth.

DSW's unique self-serve model delivered strong growth after the recession, but the stock has faltered recently, and declining comparable sales is never a good sign. 

Expect management to clarify its cost-cutting plans over the coming months, a move that could help get profits moving in the right direction again.

 

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