Will DSW Earnings Overcome The Challenging Retail Environment?

| About: DSW Inc. (DSW)

DSW Inc. (NYSE:DSW) is set to report FQ4 2014 earnings before the market opens on Tuesday, March 18th. DSW is a footwear retailer formerly known as Designer Shoe Warehouse. Retail companies have faced a difficult quarter, citing frequent snowstorms and extremely cold temperatures for reduced customer traffic and fewer sales. As other retailers have posted weaker than expected earnings this season, expectations for DSW have fallen correspondingly. Despite the diminished expectations, the buy side is optimistic about Tuesday’s report. Here’s what investors are expecting from DSW’s earnings release.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.image

(Click Here to see Estimates and Interactive Features for DSW)

The current Wall Street consensus expectation is for DSW to report 29c EPS and $578.78M revenue, while the current Estimize.com consensus from 12 Buy Side and Independent contributing analysts is 32c EPS and $587.69M in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting DSW to beat the Wall Street consensus on both EPS and revenue.

By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors, Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly, it does a better job of representing the market’s actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case, we are seeing a slightly larger than usual difference between the 2 groups’ expectations.image

The distribution of estimates published by analysts on the Estimize.com platform range from 19c to 34c EPS and from $572.0M to $630.0M in revenues. This quarter, we’re seeing a larger than usual distribution of estimates on DSW.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signals less agreement in the market, which could mean greater volatility post earnings.image

Over the past 4 months, the Wall Street EPS consensus dropped from a high of 31c to 29c, while the Estimize consensus decreased from 34c to 32c. Meanwhile, the Wall Street revenue forecast fell from $595.58M to $578.78M, while the Estimize forecast tumbled from $608.19M to $587.69M. Timeliness is correlated with accuracy, and downward analyst revisions at the end of the quarter are often a bearish indicator.image

The analyst with the highest estimate confidence rating this quarter is brianibanez, who projects 29c EPS and $572.0M in revenue. In the Winter 2014 season, brianibanez is rated as the 77th best analyst and is ranked 142nd overall among over 3,950 contributing analysts. This season, brianibanez has been more accurate than the Street in forecasting EPS and revenue 80% and 70% of the time, respectively, over 10 estimates. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research, which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, brianibanez is making a bearish call, expecting DSW to come up short of the Estimize community’s expectations on both EPS and revenue.

While expectations have fallen throughout the quarter alongside broad retail weakness, contributing analysts on the Estimize platform believe DSW can beat the earnings target set by Wall Street. This quarter, the Estimize community has forecast that DSW will beat the Street by a decent margin, but the large distribution of estimates and sinking analyst estimate revisions both contribute to a high degree of uncertainty. Expect volatile price action in DSW on Tuesday morning.

Disclosure: None