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Will DSW Inc. (DSW) Earnings Disappoint Again this Season?

Zacks Equity Research

DSW Inc. (DSW), the retailer of branded footwear and accessories, is slated to report second-quarter fiscal 2014 results on Aug 26. In the last quarter, it posted a negative surprise of 12.5%. Let’s see how things are shaping up for this announcement.

Factors Influencing This Quarter

The quarter will be impacted by margin pressure, soft trend in women’s footwear category and intense promotional retail environment. Moreover, a sluggish recovery in the economy continues to impact consumers’ discretionary power. In the last quarter, management provided fiscal 2014 earnings guidance between $1.45 and $1.60 per share that is significantly down from $1.88 earned in fiscal 2013.

Earnings Whispers

Our proven model does not conclusively show that DSW is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below.

Zacks ESP: DSW has an Earnings ESP of -3.33%. This is because the Most Accurate estimate stands at 29 cents, while the Zacks Consensus Estimate is pegged higher at 30 cents.

Zacks Rank: DSW has a Zacks Rank #4 (Sell) which lowers the predictive power of ESP. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are some companies you may want to consider as our model shows that these have the right combination of elements:

Abercrombie & Fitch Co. (ANF) has an earnings ESP of +10.00% and a Zacks Rank #2 (Buy).

Costco Wholesale Corporation (COST) has an Earnings ESP of +1.33% and a Zacks Rank #3 (Hold).

Ross Stores Inc. (ROST) has an earnings ESP of +1.16% and a Zacks Rank #3.

Read the Full Research Report on ANF
Read the Full Research Report on COST
Read the Full Research Report on ROST
Read the Full Research Report on DSW

Zacks Investment Research