Bear of the Day: DSW (DSW)


April 25, 2013 |

For the last few years, DSW (DSW - Free Report) has been a pretty hot stock. The company has managed to beat out many of its consumer discretionary peers and do quite well in the post-recessionary environment.

In fact, DSW has surged more than 300% in the trailing five year period, thoroughly crushing the S&P 500 in the process. Much of these gains were the result of consumers looking for bargains at their stores, and with the economy slowly improving, there are concerns about some trading up to the next level.

This is largely due to a bullish stock market, a return in housing prices, and better job prospects. All of which makes people feel richer and better about their future, a situation that may not always be great news for discount companies like DSW.

These trends are finally starting to catch up to DSW in 2013, as the company has seen its share price flounder, and investor perception of the company change. The stock is actually down about 4% YTD, and many are expecting this trend to continue in the near term.

Earnings Picture

This shift in perception is largely due to the poor earnings outlook for DSW in both the current quarter and current year figures. In both of these time frames, there is universal agreement among analysts to move estimates lower, with similar projections hitting the next quarter and next year consensuses as well.

Furthermore, the magnitude of the decline has also been pretty terrible, as the consensus has declined dramatically in just a two month time frame. The current quarter figures have seen a nearly 20% decline in the past two months, while the current year numbers have fallen by nearly 10% in the same time frame.

It also doesn’t help that in the company’s latest earnings report it missed expectations, marking the first time since 2010 that it failed to beat the consensus. Combine this miss, the huge run up in DSW shares, and a broad pull away from consumer stocks as of late, and you have a recipe for disaster in the short term.

Thanks to this, DSW currently has a Zacks Rank of 5 or ‘Strong Sell’, meaning that it will likely underperform the broad market in the short term. Furthermore, the stock has a Zacks Recommendation of ‘underperform’ meaning that the longer term picture isn’t too favorable either.

Better Options

DSW isn’t looking like a great pick from an earnings perspective, and it doesn’t look like this trend will reverse any time soon. So, it could be time to sell this stock, or at least avoid the firm until its outlook improves.

Fortunately for investors looking to stay in the retail segment of the consumer market though, there are a few more favorably Ranked options out there. Any of these could potentially be better plays than the struggling DSW for those who are looking to stay in the broad consumer space.

In the Zacks Industry of Retail-Apparel and Shoes, we have found two stocks with Zacks Ranks of 2 or ‘Buy’. Either of these companies, Buckle (BKE - Free Report) or Joseph A. Bank (JOSB), could make for interesting picks instead of the sluggish DSW.

Both of these stocks are seeing more positive trends in their earnings estimate figures, and look to avoid at least some of the woes that are impacting DSW. Furthermore, both recently saw a move from a Zacks Rank of 3 or ‘Hold’ up to their current ranks of buy, suggesting that now could be a good time to shop for these stocks instead.

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