On DSW, Street Leaning The Wrong Way In Q2 Report

DSW Inc. 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. GCO, Finish Line Inc FINL and Foot Locker, Inc. 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.

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.