On DSW, Street Leaning The Wrong Way In Q2 Report

DSW Inc. (NYSE:DSW) reported ahead of the market open second-quarter adjusted earnings per share of 38 cents versus 35 cents last year. Sales rose 3.3 percent to $680.4 million, achieved on the back of a 0.6 percent increase in comps.

The Street estimated earnings of 29 cents per share on revenues of $666.07 million.

The company reiterated its full-year earnings per share guidance of $1.45–$1.55, ahead of the $1.44 per share consensus estimate.

After bouncing off a bottom around $16.50, which incidentally is also a near-term support level, the shares of the footwear and accessories retailer hit a near three-month high of $18.96 on Aug. 8. Subsequently, the stock experienced a precipitous drop, as it fell to a low of $15.14 ( on an intraday basis) Monday.

The retreat can be blamed on sympathy move with peers Genesco Inc. (NYSE:GCO), Finish Line Inc (NASDAQ:FINL) and Foot Locker, Inc. (NYSE:FL).

Stung by the general malaise plaguing the retail sector and company-specific issues, Foot Locker reported disappointing second quarter results last week.

The stock plunged headlong, losing 28 percent on Aug. 8.

Source: Y Charts

General skepticism prevented investors from going long on DSW ahead of the earnings. Some even shorted the stock, expecting a Foot Locker-like earnings report. This was instrumental in the stock dropping to a 6.5 year low of $15.14.

Following the release of the forecast-beating results by DSW, the company's shares gap-opened up by $3.16 at $18.85, up from the previous session's close of $15.69. Thus far, intraday, the stock has rallied to a high of $19.39, almost matching the Aug. 8 high of $19.40.

Since then, the stock has come slightly off this level and is yet trading with a solid gain of 19.63 percent at $18.77.

On the upside, the stock could find difficulty breaching the $19.40 barrier. At the same time, the stock has downside support around $18.39 and the $17.80–$18.20 region.