DSW Stock Falls on Lower Guidance, Analyst Downgrade

DSW (DSW) shares are lower after MKM Partners downgraded the company to 'neutral' from 'buy' as a reaction to its lower 2015 guidance.
By Lindsay Ingram ,

NEW YORK (TheStreet) -- MKM Partners downgraded DSW (DSW) - Get Report to "neutral" from "buy" on Wednesday, setting its price target for the shoe retailer at $23.

Shares of DSW were falling by 14.1% to $21.05 in early morning trading.

The downgrade comes after DSW lowered its full year 2015 earnings forecast to a range of $1.40 to $1.50 a share from a range of $1.80 to $1.90 a share, and announced the retirement of CEO Roger Rawlins, after the market closed on Tuesday. Rawlins will retire at the end of the year, the company said.

MKM lowered its 2015 and 2016 EPS estimates for DSW to $1.49 and $1.85 a share from $1.85 and $2.07 a share, respectively.

"While we try hard to avoid reactionary calls, we can no longer defend DSW after yesterday afternoon's surprise CEO news and very disappointing 3Q15 prerelease and FY15 guide-down," MKM analyst Patrick McKeever wrote. "We had been concerned about the impact of warm weather on the company's extensive boot assortment and lowered our numbers in a 10/1/15 report."

"While we believe weather was a factor in 3Q15, broad weakness in the core women's footwear business (60%+ of total sales) suggests bigger problems, and unfortunately, a fix could take some time," McKeever continued.

Separately, TheStreet Ratings team rates DSW INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

We rate DSW INC (DSW) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income and revenue growth. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow, a generally disappointing performance in the stock itself and disappointing return on equity.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • DSW INC has improved earnings per share by 13.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, DSW INC increased its bottom line by earning $1.69 versus $1.64 in the prior year. This year, the market expects an improvement in earnings ($1.86 versus $1.69).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Specialty Retail industry average. The net income increased by 9.6% when compared to the same quarter one year prior, going from $34.33 million to $37.61 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Specialty Retail industry and the overall market on the basis of return on equity, DSW INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • Net operating cash flow has decreased to $65.18 million or 21.99% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • You can view the full analysis from the report here: DSW
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