Yesterday after close of market, we heard the bad news from Retail Ventures (NYSE:RVI) subsidiary DSW (NYSE:DSW): Profits rose 14% year over year, but still fell short of Wall Street expectations. Now that the subsidiary's bad news is out, we'll hear from the parent company tomorrow, when Retail Ventures reports its own Q4 and full-year 2005 numbers.
What analysts say:
- Buy, sell, or waffle? One solitary analyst follows Retail Ventures (for comparison, that's 20% of the coverage that subsidiary DSW gets). This analyst rates the DSW parent a buy.
- Revenues. It's not really a "consensus," but the analyst is projecting 8% sales growth for the fourth quarter. $822.1 million will be the magic number.
- Earnings. One year ago, Retail Ventures lost $0.57 per share, thanks in large part to negative $0.49 per share of "special items" -- primarily severance payments and goodwill write-offs. Tomorrow, the analyst estimate is for the company to break even, but take that with a grain of salt. The same Yahoo! page that lists the $0.00 earnings target also indicates that Retail Ventures managed to break even in Q4 2004, which is only true if you exclude the special items charge.
What management says:
Actually, after taking that grain of salt, keep the shaker -- you may need it. Because yesterday, Retail Ventures filed a series of restated financial statements in connection with an earnings restatement necessitated by its flunking of the Sarbanes-Oxley internal controls mid-term. Most of the problems, it seems, were related to accounting for deferred taxes.
What management does:
Retail Ventures doesn't usually say much of interest in its earnings releases. Or at least, not in prose form. Instead, it lets its numbers tell the tale.
Actually, that may be for the best, because if put into words, this tale could be unprintable in a family publication. The rolling gross margins slid only a little over the last 18 months, but that was enough to ensure that selling, general, and administrative expenses now exceed gross profit. As a result, Retail Ventures has been operating at a loss for the last three quarters.
|
Margins % |
7/04 |
10/04 |
1/05 |
4/05 |
7/05 |
10/05 |
|---|---|---|---|---|---|---|
|
Gross |
39.8 |
40.2 |
39.3 |
39.1 |
38.6 |
38.1 |
|
Op. |
2.3 |
2 |
1.4 |
0.8 |
0.2 |
(0.2) |
|
Net |
0.4 |
0.3 |
(0.7) |
(1) |
(5.2) |
(3.1) |
One Fool says:
Despite having "spun off" DSW, Retail Ventures still owns over 60% of DSW's shares. Consequently, over 60% of DSW's earnings miss should be expected to hit Retail Ventures' shares today and its numbers tomorrow. Combine yesterday's bad news from the subsidiary with the overall disappointing recent performance of the parent company, and investors could well be in for a "downside surprise" tomorrow.
Competitors:
- Federated Department Stores (NYSE:FD)
- TJX (NYSE:TJX)
- Payless Shoesource (NYSE:PSS)
Check out how subsidiary DSW is doing with this further Foolishness:
Fool contributor Rich Smith does not own shares of any company named above.
