Designer Brands Q3: A Clear EPS Beat, But Not Good Enough
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Caffital Research1.85K FollowersFollow5ShareSavePlay(9min)CommentsSummaryDesigner Brands Inc. reported a clear EPS beat in Q3, sending the stock surging.The report still shows weak underlying trends. Comparable store sales remain weak, ultimately driving long-term earnings deterioration.Gross margin expansion through lower markdowns is a clear positive, but gains shouldn't be extrapolated far.After the post-earnings surge, DBI is valued too optimistically. I estimate 36% downside to $3.92. ronniechua/iStock Editorial via Getty Images Designer Brands Inc. (DBI) reported the company’s fiscal Q3 results from the August-October period on the 9th of December. The shoe retailer’s earnings beat surprised the market positively, sending the stock up byThis article was written byCaffital Research1.85K FollowersFollowI am an avid investor with a major focus on small cap companies with experience in investing in US, Canadian, and European markets. My investment philosophy to generating great returns on the stock market revolves around identifying mispriced securities by understanding the drivers behind a company's financials, and ultimately, most often revealed by a DCF model valuation. This methodology doesn't limit an investor into rigid traditional value, dividend, or growth investing, but rather accounts for all of a stock's prospects to determine the risk-to-reward.Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.Quick InsightsHow does DBI’s Q3 sales performance compare to peers and what does it signal?DBI’s comparable sales declined 2.4%, underperforming most peers and signaling a weakening competitive position.Why did DBI's earnings improve in Q3?DBI achieved earnings growth through gross margin expansion. Lower markdowns and prudent cost control were behind the increase.What is DBI stock's fair value?DBI's fair value is volatile due to high debt and uncertain earnings. A DCF model suggests a base scenario fair value of $3.92.Recommended For You