Why DSW Inc. Stock Dropped Today

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What happened

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Shares of DSW Inc. (NYSE: DSW) were down 12% as of 11:45 a.m. EST Tuesday after the footwear retailer announced weaker-than-expected third-quarter 2017 results.

More specifically, DSW's quarterly revenue climbed 3.3% year over year to $680.4 million, including 0.6% comparable-sales growth. On the bottom line, that translated to adjusted net income of $30.6 million, or $0.38 per diluted share, up from $29.1 million, or $0.35 per share in the same year-ago period. Both figures were below investors' expectations for earnings of $0.53 per share on revenue of $709.6 million.

So what

To be fair, we should keep in mind that DSW stock climbed nearly 14% over the past few days -- a happy consequence of both an analyst upgrade and encouraging results last week from shoe-selling peer Foot Locker (NYSE: FL).

Nonetheless, DSW CEO Roger Rawlins noted that comps and earnings were negatively impacted by hurricanes during the quarter, while cold-weather products "struggled to gain the traction we had anticipated."

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In addition, DSW took a $52.7 million (or $0.40 per share) non-cash goodwill impairment charge -- which isn't included in those adjusted results -- related to its acquisition of online footwear retailer Ebuys. Based on Ebuys' performance over the last year and a half, DSW "believes it is necessary to moderate the growth assumptions assumed at the time of the acquisition."

Now what

Looking ahead to the the rest of the year, DSW now expects adjusted earnings per share to be in the range of $1.40 to $1.45, down from previous guidance of $1.45 to $1.55, reflecting a combination of weather-related headwinds and lower expectations for Ebuys.

That's not to say DSW is a broken business. Management did point out that effective inventory management helped protect their bottom line and left them with lower inventory on a year-over-year basis. And Rawlins elaborated that Ebuys not only offers "valuable expertise to manage end-of-season clearance through online marketplaces," but also promises compelling synergies with the core business once its integration is complete.

But in the end, given DSW's relative under-performance in the third quarter and reduced forward guidance, it's no surprise to see the stock dropping in response today.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends DSW. The Motley Fool has a disclosure policy.