DSW Earnings Preview: Is A Turnaround In The Cards?

Footwear retailer DSW (NYSE: DSW) is set to release its fiscal first-quarter financial results on Wednesday prior to the opening bell.

Thus far, 2014 has been a disappointment for DSW shareholders with the stock falling 23 percent year-to-date. Nevertheless, the market headwinds have been near-term and long-term shareholders have little to complain about. Over the last 5 years, the stock has surged better than 420 percent and shares touched all-time high levels as recently as the beginning of the year.

In recent trading sessions, DSW was trading at a forward P/E of roughly 15 and a PEG ratio of 1.38. Investors will also find the stock's 2.30 percent dividend yield to be attractive.

Analyst Expectations

Heading into Wednesday's critical report, Wall Street analysts had consensus earnings per share estimates of $0.48. The high estimate was $0.50 with a low range of $0.46. This tight range of estimates could limit volatility after the print as long as the company's results are not too extreme in one direction or the other. In last year's corresponding quarter, DSW reported EPS of $0.50.

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Over the last three months, EPS estimates for the retailer have fallen $0.05 from $0.55 to the current estimate of $0.50. During this time period, the shares have shed better than 12 percent.

On the revenue front, Wall Street is looking for DSW to report sales of $622.40 million. The high estimate is $643.90 million with a low estimate of $608.40 million. Current expectations imply year over year sales growth of roughly 4.40 percent versus the $596.11 million in sales the company reported in the year ago quarter.

Analyst Color

In a report from May 20, analysts at Credit Suisse wrote that they are expecting a difficult Q1, but remain optimistic about the full-year outlook for the company. They wrote, "we believe the recent pullback in DSW stock could provide a buying opportunity for those that can take a multi-quarter view."

The analysts explained their pessimistic view regarding Q1 as being a result of unfavorable weather, continuing issues in the women's footwear department from last year, and uncertainty surrounding a new CFO. They added, however, that the recent decline in the share price reflects these concerns and that "the company may be able to speak to progress in some of its recent problem areas, which should be the focus at this stage."

On May 8, analysts at Buckingham Research launched coverage on DSW with a Buy rating and $44 price target. They wrote, "in our view, DSW is a best-in-class retailer poised to benefit from new trends in women's fashion later this year." They added that the footwear retailer "is an accelerating comp story with solid square footage growth potential and a longer-term margin opportunity." Buckingham analysts also argued that the company's $6.30/share in cash on the balance sheet should provide DSW with significant flexibility going forward.

The Company

DSW is a branded footwear and accessories specialty retailer. The company currently operates 394 stores in 42 states, the District of Columbia and Puerto Rico. In addition, DSW also operates 356 leased departments inside of larger retailers under the company's Affiliated Business Group.

At current levels, DSW has a market cap of around $3 billion. The company's primary competitors include other footwear retailers such as Payless (NYSE: PSS) and Shoe Carnival (NASDAQ: SCVL). DSW is headquartered in Columbus, Ohio and employs 11,000 people.