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DSW Inc. (DSW) Sinking on Earnings Miss, Weak Guidance

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DSW Inc. (NYSE:DSW) is sharply lower in afternoon trading, by over 11%, after reporting first quarter earnings of $0.40 per share on revenue of $681.27 million, missing estimates of $0.45 per share in earnings on sales of $698.79 million. Comparable-store sales dropped by 1.6% year-over-year and operating margin inched lower by 400 basis points to 7.2%. The company’s ABG business revenue also declined by 0.3% to $43.14 million. In yet more bad news, guidance was also a little soft, with management predicting a comparable-store sales contraction of 1%-to-2%, gross margin contraction of 100-to-150 basis points, and adjusted EPS of $1.32-to-$1.42 for the second quarter. Given the company’s dividend yield of over 3.5%, the bulls hope that value investors will step up and buy shares of DSW Inc. (NYSE:DSW) on their weakness at some point. The company will likely need to reverse its same-store negative sales comps for the stock to do well, however.

Is DSW Inc. (NYSE:DSW) an outstanding investment today? Investors who are in the know are taking an optimistic view. The number of bullish hedge fund bets advanced by 3 in recent months, to 22, with those investors owning 13.10% of the company’s shares. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Eldorado Gold Corp (USA) (NYSE:EGO), Five Below Inc (NASDAQ:FIVE), and Cathay General Bancorp (NASDAQ:CATY) to gather more data points.

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Billionaire hedge fund managers such as Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside in the ignored corners of equity markets, which is why the Insider Monkey team has built an investment strategy around these stock picks.

When looking at the institutional investors followed by Insider Monkey, David Einhorn’s Greenlight Capital has the largest position in DSW Inc. (NYSE:DSW), worth close to $96.7 million, amounting to 1.6% of its total 13F portfolio. The second most bullish fund manager is Balyasny Asset Management, led by Dmitry Balyasny, holding a $51.8 million position; 0.3% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions comprise Gilchrist Berg’s Water Street Capital, Israel Englander’s Millennium Management, and Ken Griffin’s Citadel Investment Group.

On the next page we’ll look at some funds that took up positions in DSW during Q1, as well as compare the stock to a handful of others with similar market caps.

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