“We believe Q4 was marked by highly aggressive promotions and markdowns that were needed to drive traffic into stores. As with other retailers, we expect the weakest aspects of DSW’s business were concentrated in cold weather categories and tall-shafted fashion boots as the industry was tasked with working down inventory across the channel,” Canaccord Genuity Inc. analyst Camilo Lyon wrote Monday. “That said, we fear DSW is being forced to take a stronger line on its price/value position in the market as it straddles between full price competitors (Macy’s), off-price (TJX) and online retailers (Amazon), resulting in ongoing margin compression.”
Lyon maintained a hold rating on the firm’s stock and predicted Q4 diluted earnings per share of 7 cents, in line with consensus estimates. Average forecasts call for revenue of $641.19 million and comp decline of between 2 percent to 3 percent.
Eyeing macroeconomic challenges, Stern Agee CRT analyst Sam Poser also remained on the sidelines, trimming his Q4 estimates and referring to the company’s outlook as “cloudy.”
“[We will] stay on the sidelines at least until the 4Q15 earnings call on March 15 when new CEO, Roger Rollins, sets forth his vision and plan for DSW,” Poser wrote on March 9. “The company continues to focus on top-line growth rather than margin growth. In addition, DSW lacks the necessary competitive advantage against retailers such as Macy’s, Nordstrom Rack and Zappos, as merchandise systems and processes have not been optimized. DSW merchants must become more proactive than reactive.”
Poser is also predicting Q4 diluted EPS of 7 cents, but is even more cautious on same-store sales — forecasting that comps declined 5 percent in the quarter. The analyst maintained his FY15 EPS estimate of $1.43 versus guidance of $1.40-$1.50, however, he lowered his FY16/17 EPS estimates from $1.60/$1.82 to $1.56/$1.78.
Despite a neutral rating on the stock, Susquehanna Financial LLLP analyst Christopher Svezia said Q4 is likely to be better than anticipated.
“Despite aggressive promotions, we believe DSW successfully achieved quarterly results that assumed low-single-digit comp and up to 400 basis points in gross margin decline,” Svezia wrote on Feb. 18. “Our checks point to a timely flow of fresh product indicating that inventory is likely clean while marketing remains focused on the product versus promotions.”
Svezia upped his prior estimates and now expects a comp decline of 1 percent to 3 percent and EPS of 8 cents $0.08 EPS compared with expectations for a comp decline of 2 percent to 3 percent.