Credit Suisse Lowers DSW's Price Target

• Shares of DSW Inc. DSW have been declining through 2015 and are down 37 percent year-to-date.
• Credit Suisse’s Seth Sigman maintained an Outperform rating on the company, while reducing the price target from $44 to $26.
• Structural opportunities do exist for the company, but weak sales trends are likely to continue in the near future, Sigman stated.

DSW reported weak quarterly results, and the trend is likely to continue in the fourth quarter on account of a tough cyclical and weather environment. Lower tourism traffic, lackluster sales of seasonal products and a cyclical slowdown in softlines sales adversely impacted the company’s sales in the latest quarter.

Analyst Seth Signman believes that the sales trends would remain soft with full-year comps now expected to be flat. He commented, “We believe that a natural late-cycle slowing of spending is being exacerbated by short-term weather headwinds.”

Signman expects moderating pressure on the company’s gross margins going forward, given aggressive initiatives to clear slow-moving inventories. He wrote, “We also view special buys of highly branded product as an appropriate move, given that high-value brands help reinforce the value proposition of the business, stimulate traffic, and create brand loyalty.”

Structural opportunities continue to exist for DSW’s businesses, given their underlying positioning in the value footwear business. The analyst added, however, that the visibility into the company’s earnings power will be delayed into FY16.

The EPS estimates for FY16, FY17 and FY18 have been reduced from $1.90 to $1.49, from $2.12 to $1.57 and from $2.31 to $1.67, respectively.