Analysts Trim DSW Estimates Ahead Of Q1

Market watchers have changed their tone on DSW Inc. significantly over the past few quarters.

Last week, the firm’s share price slipped to a 52-week low of $20.84, and despite the strength in the off-price channel in recent months, analysts have been down on the discount retailer lately.

Sterne Agee CRT analyst Sam Poser and Canaccord Genuity Inc. analyst Camilo Lyon both slashed their expectations for the firm ahead of Tuesday’s Q1 earnings report.

In a note issued on Thursday, Lyon lowered his Q1 estimates for comparable store-sales and diluted earnings per share to 0.5 percent and 45 cents per share, respectively, from 3 percent and 51 cents per share.

We believe weak traffic trends coupled with an intensified promotional environment [by department stores] and erratic weather patterns in March and April curtailed comp growth and likely resulted in excess sandal inventory,” Lyon said. “We suspect these results will highlight our longer term concerns with the company’s strategic position in an industry that is becoming increasingly competitive, and in which DSW’s value proposition is eroding.”

Consensus estimates peg the retailer’s Q1 diluted EPS at 46 cents, a 13 percent year-over-year decline, and revenues at $700 million, a 7 percent year-over-year increase.

Maintaining a neutral rating on DSW’s stock, Poser said he believes the company is prioritizing top-line growth as opposed to margin growth.

DSW does not have the necessary competitive differentiation or advantage for success against competitors such as Nordstrom Rack, Zappos and others,” Poser said. “We need to see implementation of the three pillars for improvement, focus, tempo (need for speed) and disruption, which new CEO Roger Rawlins’ discussed on the 4Q15 call.

Poser added that the company’s merchants must “become more proactive than reactive, and adjust their strategy around the athletic business.”

The analyst forecasts Q1 revenues of $694 million and lowered his same-store sales estimate from up 0.5 percent to down 0.2 percent. He also trimmed EPS estimates from 49 cents per share to 46 cents per share, which was in line with consensus.

Looking ahead, Poser pointed out that improving fashion and athletic trends make the short-term appear promising.

Meanwhile, Lyon said Q1 is likely the start of a “tough year with down earnings.”

In recent months, DSW had unveiled several plans to improve top-line growth and overall business.

In March, the retailer announced plans to launch its new kids business — a concept tested in 22 stores last year — in 220 stores for back to school.

Management believes, and we agree, the addition of the kid’s department will likely drive incremental women’s footwear sales,” Poser noted.

In February, the company also announced its acquisition of Ebuys Inc., an e-commerce off-price footwear and accessories retailer with a presence in North AmericaEurope, Australia and Asia.

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