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DSW Sinks Retail Stocks Ahead of 'Black Friday'

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Only days before Black Friday, shares of some of the biggest U.S. retailers, including Macy’s (M - Free Report) , Nordstrom (JWN - Free Report) and Dillard’s (DDS - Free Report) , sunk on Tuesday after DSW (DSW - Free Report) reported lower than expected third-quarter results and weakened fourth quarter guidance.

DSW failed to meet third-quarter earnings estimates, citing negative impact from the wave of early fall tropical storms and hurricanes, along with warmer than usual weather. Although the discount shoe retailer’s third-quarter revenues rose 1.7%, they missed expectations, and comparable store sales fell 0.4%.

On top of that, DSW updated its full-year outlook and now expects earnings to fall between $1.40 and $1.45 per share, which reflects the retailer’s newly lowered expectations. Furthermore, the company noted that one of its newest acquisitions, Ebuys—bought in the hopes of boosting its online presence—is not performing up to expectations.

"At Ebuys, we've moderated the long-term financial expectations and have reduced its carrying value on our balance sheet,” CEO Roger Rawlins said in a statement. 

Shares of DSW tumbled over 11% in morning trading after it released its third-quarter earnings report. Before Tuesday’s descent, DSW stock had dipped roughly 0.50% since the start of the year.

DSW’s rough Q3 also has some investors dumping other notable retailer players far beyond the scope of the shoe industry.

Other Retailers

Macy’s shares dipped over 1.50%, while Nordstrom saw its stock price sink by as much as 1.70%. Dillard’s stock dropped by more than 2.33%, and Kohl’s (KSS) experienced a marginal decline. 

DSW’s poor performance and lowered guidance also negatively impacted shares of American Eagle (AEO - Free Report) and The Gap (GPS - Free Report) . Shares of Dick's Sporting Goods (DKS - Free Report) also dipped, while sports footwear retailer, Finish Line stock sank by over 1.80%.

Retail sector ETFs also fell on Tuesday. Shares of the SPDR S&P Retail ETF (XRT - Free Report) dropped over 1%, while the Direxion Daily Retail Bull 3x Shares ETF (RETL - Free Report) dipped over 2.60%.

This downturn, directly ahead of what has become retail’s most important week, does not bode well for the industry. It’s also worth noting that DSW is not known to be a bellwether for the retail industry, which could mean retail investors are simply skittish overall.

What might make investors even more nervous is that, over the last decade, this two-week period has proven to be one of the industry’s strongest. In fact, since 2007, retail is the top U.S. equities sector during the week before and after Black Friday, according to CNBC analysis.

Now, only three days away from Black Friday and the start of the holiday shopping season, retailers and investors will hope customers eager for deals come out in droves.

Luckily, this year—despite pushback against the now decades-long practice and an overall retail shift—the National Retail Federation estimates 164 million people plan to shop on Black Friday, which is up from 87 million in 2014 (also read: A Complete History of 'Black Friday').

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