Analyst Stays Positive in DSW, With More Conservative Targets

Canaccord Genuity’s Camilo Lyon decided to maintain the firm’s Buy rating on DSW, but the price target was lowered sharply to $37 from $46.

What was cited was disappointing comparable sales. The firm still ultimately remains positive here. That is after DSW reported earnings per share of $0.42, versus the firm’s own $0.44 estimate. Consensus was listed as $0.42. Gross margin expanded by 122 basis points, what the firm said was due to less clearance activity driving merchandise margin expansion.

The report summary noted:

Relative to our model, the miss was driven by lower revenue (-1c) and lower gross margin (-3c), partially offset by lower expense growth (+1c) and lower tax rate (+1c). DSW segment comparable of 1.9% was considerably below our 4% estimate (consensus was 3.5%), negatively impacted by 6% decline in clearance comp due to elevated promotional activity in the second quarter of 2014.

Conversely, DSW continued to drive more full price selling as regular price comparable was up 4%. Women’s comparable was flat, as strength in sandals and athletic was offset by softness in casuals and dress.

The report summary concluded:

Overall, we are disappointed by the weak comparables and feel the company could have done a better job in communicating the potential comp impact from last year’s elevated clearance activity, as we (among others) were caught off guard.

DSW’s $28.45 share price was after 4% gain Wednesday morning. DSW has a consensus price target of $40.00, but note that the Canaccord Genuity $46 target from before was the highest target of all analysts on Wall Street. The 52-week trading range is $27.28 to $39.58, and the stock trades at about 14 times expected 2015 earnings estimates. It also has a dividend yield of about 2.5%.

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