DSW shorts are running for cover after a massive post-earnings bull gap
Shares of DSW Inc. (NYSE:DSW) are soaring in early trading after the shoe retailer posted a second-quarter earnings beat and raised its full-year profit and revenue guidance. The company reported adjusted earnings of 63 cents per share on $795 million in revenue, sailing past Wall Street's forecast for a profit of 46 cents per share on $689.4 million in revenue, as same-store sales vaulted 9.6% -- well beyond the 0.6% increase booked in the year-ago quarter.
Additionally, DSW raised its full-year earnings outlook to a range between $1.60 and $1.75 per share, compared to the consensus forecast of $1.61. The retailer now expects revenue to ramp up 6% to 9%, which reverses its previous forecast for a decline of 1% to 3%.
In response, DSW stock gapped higher out of the gate. The shares rallied 22.9% to $33.44, marking a new three-year high. Ahead of today's report, DSW was already climbing the charts. Support from the stock's 50-day moving average has helped guide it consistently higher since this level was initially cleared following the equity's post-earnings bull gap in mid-March -- and notably, this trendline also contained the stock's post-earnings bear gap lows in late May.
However, analyst attention was far from optimistic coming into today's report. Of the eight firms covering DSW stock, six sport tepid "hold" or "sell" ratings. Plus, the stock's average 12-month price target of $24.91 now represents a significant discount to DSW's current price.
Today's positive earnings surprise likely has DSW short sellers running for cover. Short interest represents 11.5% of the stock's total available float -- and at the footwear concern's average daily trading volume, it would take nearly seven days for shorts to buy back all of their bearish bets.