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Will DSW Sustain Sturdy Comparable Sales Run in Q3 Earnings?

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DSW Inc. is expected to release third-quarter fiscal 2018 results on Nov 20. Earnings of this renowned footwear and accessories company surpassed estimates in three of the trailing four quarters, the average being 17%. The company is steadily gaining from robust merchandising and marketing strategies, which have been fueling year-on-year growth in the top and the bottom line for a while. Let’s see what’s in store for the company this time around.

Solid Comps Likely to Continue Aiding

DSW boasts a sturdy comparable sales (comps) performance, buoyed by effective marketing and merchandising efforts that have led to improved customer engagement. Notably, comps have increased 9.7%, 2.2% and 1.3% in the trailing three quarters. In fact, during the second quarter of fiscal 2018, the company witnessed positive comps across most categories. Additionally, management is pleased with the VIP program and digital marketing efforts that aided new customer activity and higher average spend per customer. We expect the company to continue gaining from such robust efforts to drive traffic.

Acquisitions & Other Efforts

Acquisitions are another vital strategy for DSW to strengthen portfolio and enhance revenue opportunities. The company relies on strong capital position to invest in its core business and undertake strategic acquisitions that augment the customer base. Progressing along these lines, the company completed consolidating the Canadian acquisition during the second quarter. As a result, the company is in full control of banners such as Shoe Company, Shoe Warehouse and DSW Designer Shoe. The company expects to generate revenues worth approximately $215 million from the acquisition in fiscal 2018.

Apart from this, DSW recently acquired the operations of Camuto Group, a renowned name in footwear as well as brand development and product designing. Further, the company inked a contract to collaborate with Authentic Brands Group to buy several intellectual property rights of Camuto Group. Such collaborations are expected to expand retail footprint and strengthen franchising, direct-to-consumer as well as licensing capabilities.

Apart from well-chalked acquisitions, DSW is also on track with effectively managing inventory levels. In fact, such efforts along with favorable sourcing costs, lower clearance markdown and occupancy leverage aided the company’s gross margin performance in the second quarter. Moreover, strudy comps and strong gross margin aided the company in offsetting rising SG&A expenses in the said period.

DSW Inc. Price, Consensus and EPS Surprise

 

Estimates Reveal Bright Prospects

The company’s focus on improving market share and developing strong brand assortments have been yielding. Such aspects led management to raise outlook for fiscal 2018. This in-turn boosts expectations for the impending quarter as well. Well, the Zacks Consensus Estimate for third-quarter earnings is currently pegged at 51 cents, reflecting a 13.3% rise from 45 cents in the year-ago quarter.

Further, the consensus mark for overall sales is pegged at $785.6 million, reflecting growth of nearly 11% from the year-ago quarter’s tally.

Zacks Model

Our proven model doesn’t show that DSW is likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although DSW currently carries a Zacks Rank #3, its Earnings ESP of 0.00% reduces chances of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

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