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DSW Downgraded: Susquehanna Projects Limited Upside After Q1 Beat

DBI | May 31, 2018

Despite reporting a first-quarter earnings and sales beat Wednesday, DSW Inc (NYSE: DSW) is being downgraded by a notable industry analyst.

The Analyst

Susquehanna’s Sam Poser downgraded DSW from Positive to Neutral and maintained a $26 price target.

The Thesis

DSW is "doing the right things" for the long-term health of the business, but its Q1 print report failed to justify a higher price target, Poser said in a Thursday note. (See the analyst's track record here.)

On Wednesday, the footwear retailer delivered Q1 earnings of 39 cents per share, beating estimates by 2 cents. Sales came in at $712 million, $30 million ahead of estimates. The company guided for fiscal 2018 adjusted earnings of $1.52-$1.67.

“We commend DSW for continued strides in inventory management, which should provide meaningful go-forward merchandise margin opportunities,” Poser said.

The retailer's inventory stands at the best position in four years, the analyst said. Still, there is limited upside for DSW after shares moved into the mid-$20s and and an earnings report that lacked meaningful incremental good news, Poser said.

Susquehanna lowered its fiscal 2018 and 2019 estimates to reflect greater-than-expected SG&A investment, but maintained a $26 price target.

“While we believe DSW is on a solid trajectory, we believe a constructive outlook is already priced into the stock."