On March 20, 2014, Zacks Investment Research downgraded DSW Inc. (DSW), the branded footwear retailer, to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Shares of DSW slipped 2.9% after the company released its fourth-quarter fiscal 2013 earnings on March 18, 2014.
During the quarter, the top line disappointed as it slipped 3.7% to $572.3 million. Sales also fell short of the Zacks Consensus Estimate of $586 million as weak sales from a huge decline in women’s footwear sales were more than offset by the increase in men’s footwear sales.
Comparable store sales (comps) remained flat year over year, compared to a 3.6% rise last year. The impact of increased store conversion was completely offset by a fall in store traffic leading to flat comps.
The company’s women footwear business posted a 3% comps decline during the quarter and the company believes that the changing lifestyles will continue to be a big concern for DSW. During the year, the company’s focus on implementing omni-channel strategies also led to higher costs for the company.
DSW’s quarterly adjusted earnings of 31 cents a share tanked 8.8% year over year. Moreover, gross profit declined 6.8% with the gross margin contracting 90 basis points (bps). On the other hand, operating profit inched down 1.8% to $44.8 million.
The company’s dismal results triggered a downtrend in the Zacks Consensus Estimates, as analysts become less constructive on the stock’s future performance. The Zacks Consensus Estimate for fiscal 2014 and 2015 fell 9% to $1.91 and 1.7% to $2.33, respectively in the past 7 days.
Other Stocks that Warrant a Look
Other better-ranked retail stocks that look promising and are expected to continue with their upbeat performance include Foot Locker Inc. (FL), American Apparel, Inc. (APP) and Columbia Sportswear Company (COLM), all sporting a Zacks Rank #2 (Buy).