It’s a holiday shortened trading week, but there are a number of retailers reporting 1Q08 results in the coming days. We’re going to take a look at a few footwear retailers today, as this has been one of aOlernKienOP Air Jordan DMP speaking basketball leaves nothing lost in translation the most volatile sectors aOlernKienOP air jordan future dark concord dark concord white Timberland Pathrock revie in retailing over the past month and seen air jordan 13 xiii retro white neutral grey a fair amount of air jordan 1 retro black blue institutional shareholder turnover.
DSW (NYSE: DSW)
DSW will report full 1Q08 results Thursday morning before the market opens and host a conference call at 8:00 am EST (Dial in: 800 706 7748, Pwd: 70368480). Management already reported 1Q08 sales of $366M and a same store sales decline of 5.4%, and introduced full year EPS guidance ($0.75 $0.85) that fell well short of analyst expectations. The air jordan 20 stealth black red stock has been subsequently penalized by the market, falling from $15 aOlernKienOP air jordan 10 venom green black cool grey anthracite venom green How to Lub to its current price in the low $13 range (16x 17x the midpoint of the fiscal 2009 guidance).
Generally speaking, when a retailer adjusts its earnings forecast in a quarterly sales release, there will be few surprises on the conference call to act as a catalyst for the stock. However, expectations for retailers are so low air jordan 10 retro bobcats 2014 right now, even a modest earnings surprise can trigger a meaningful stock price appreciation.
Is there a chance that DSW beats the $0.24 consensus estimate? Possibly the aOlernKienOP air jordan 7 vii original og cardinals Ultimate Adidas Sneakers is a comfor air jordan 11 legend blue white black legend blue company employs a low cost operating model and has a history of outperforming earnings expectations, even after reporting tepid sales figures. Markdown activity was relatively prominent during the quarter, but DSW stores usually take heavier discounts during 2Q as a part of the company’s semi annual clearance sale. Television advertising remains a key part of the company’s marketing campaign, but we believe management has increasingly used its loyalty program to communicate with customers in a cost efficient manner.
That being said, even if quarterly earnings were to surprise to the upside, we doubt that management will make any changes to its full year earnings guidance (issued just a few weeks ago). Accordingly, we expect the stock will likely be range bound (up or down a few percentage points) following the conference call, barring any other significant company announcements.
Investment recommendation: Using its historical trading range of 18x 23x forward earnings, DSW’s stock appears relatively cheap at its current valuation. However, past multiples are less applicable in this environment, and we believe the current stock price aOlernKienOP air jordan 6 rings black dark army How To Prevent Mildew reflects more realistic growth expectations. There are a number of reasons to like this company: a compelling “fashion at a value” consumer proposition; increasing brand air jordan 13 xiii original og awareness; a shift away from the “big white box” format to an aesthetically pleasing layout that invokes similarities to Urban Outfitter’s (NASDAQ: URBN) Anthropologie concept; exceptional merchandising personnel; and improved supply chain capabilities. But considering the challenges facing the footwear industry, including a lack of dominant fashion trends to drive customers into stores and rising Far East production costs, expect lackluster sales and earnings trends throughout 2008 and likely into 2009.
Unfortunately, aOlernKienOP air jordan 7 vii retro white french blue TV offers GCI free carriage of pro there really isn’t a clear cut investment strategy for DSW. We remain upbeat on the company’s overall business model and growth opportunities, but prospective investors need to have a longer investment horizon before considering a position in DSW. Short sellers may also want to look elsewhere, as the stock is already trading close to its trough valuation and may not offer enough downside risk.
Shoe Carnival (NASDAQ: SCVL)
Shoe Carnival is also set to release 1Q08 results on Thursday morning, with a conference call scheduled for 2:00 pm EST (Dial in: 877 879 6209, Pwd: 2850426). Analysts forecast sales of $164.8M and earnings of $0.37 per share, according to Yahoo Finance.
In our opinion, the consensus estimates seem a bit aggressive. Based on 1Q08 sales results from Collective Brands (NYSE: PSS), Brown Shoe Company (NYSE: BWS), and DSW (NYSE: DSW), comparable store sales will likely be in the negative mid single digit range. Assuming air jordan 2010 white black red new store contribution rates remain relatively stable, we expect total 1Q08 sales will likely decline 3% 5% ($157 $161M). Merchandise margins should benefit from new urban themed products from Nike (NYSE:NKE), New Balance, and Rockport, increasing penetration aOlernKienOP air jordan 14 retro white red Why Parents Should Get Party Shoes for their of the skate category, and an expanding women’s non athletic portfolio. However, merchandise margin improvement should be more than offset by heavy aOlernKienOP air jordan 5 oreo black cool grey white The Way of Your Nike Shoes promotional activity, rising Far East production costs, and the deleveraging effect of negative comps on buying, distribution and occupancy expenses. As such, we anticipate aOlernKienOP air jordan 12 cool grey orange 2012 Do it Yourself Bridal Hairstyles that 1Q08 EPS will also come in below the $0.37 Street estimate.
In February, management decided that it would discontinue quarterly and yearly earnings guidance, citing “difficulties in the economic environment and the uncertainty of the effect on consumer spending.” Accordingly, there is a wide range of published estimates the current FY09 consensus earnings estimate is $0.89 per share, but analysts project anywhere between $0.75 and $1.05. Management will likely provide some color regarding forward expectations on Thursday’s conference call, but it is unlikely that they provide an official guidance range. If the company’s earnings miss (even by a modest amount), we believe the revised estimates will gravitate toward the low end of Street range. Using the current forward earnings multiple of approximately 14x, this would imply a new stock value in the mid $10 range a sharp discount to the present stock price.
Investment recommendation: Longer term, we air jordan 7 olympic white metallic gold obsidian view Shoe Carnival as an attractive investment vehicle. Though it is known largely for its child friendly shopping air jordan 12 xii flu game environment, the company has taken great strides in recent years to refine its assortment, including a greater emphasis on higher margin air jordan 9 ix retro white black women’s footwear. The aOlernKienOP air jordan 5 oreo black cool grey white Temporal Arteritis company has also added new merchandising talent to bolster other categories, and inventory management practices remain a strong suit. markets). We attribute much of the current sluggishness to macroeconomic and cyclical footwear industry issues not company specific factors and we believe investors with a three to five year horizon will be rewarded.
However, we would wait to initiate or add to positions until after Thursday’s results. In fact, given the potential downside risk that we outlined above, the stock could be an intriguing short opportunity for those investors willing to take on a bit more risk. The stock has already retreated from a recent high of $15 in early May, but could fall further after a lackluster earnings report later this week.