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Tickers in this Article: DSW, SCVL, BWS, GCO
The shoe industry went three for four this week... from a certain point of view. In baseball terms, that's batting 0.750, although I'd consider Genesco's (NYSE: GCO) hit something more like a base reached on an error. Still, there was more good than bad. Is there any investment-worthy message we can glean from footwear purveyors' earnings? Sure, but let's cover a couple of key details first. (Learn more about the retail sector in our Industry Handbook: The Retailing Industry.)
IN PICTURES: Digging Out Of Debt In 8 Steps

One Walked, Two Ran, One Stumbled
Factoring in costs associated with converting some debt to shares, Tennessee-based shoe manufacturer Genesco lost 31 cents per share. Taking out the charge, the company actually earned 17 cents per share - well above the 4 cents analysts were expecting. GCO shares sold moderately. Brown Shoe Co. (NYSE: BWS) posted a loss as expected, although not as severe as the 27 cents loss the market was looking for. Brown was in the red by 18 cents per share during its Q1, on a 3% decline in revenue. As would be expected, the stock surged.

So far a mixed bag, huh? One company tops positive estimates for operating earnings, and nobody cares. Another tops negative estimates, but still posts a loss, and investors go hog wild. Just wait; the inconsistencies get even more interesting.

DSW (NYSE: DSW) posted a decent number on Wednesday evening, pulling in 16 cents per share last quarter, just like analysts expected. And what happened to the stock? Try a 13% dip despite being the only (net) profitable company in the bunch. The market just couldn't get past the comparison to a 31 cent profit for the same quarter a year earlier. And then there's Shoe Carnival (Nasdaq: SCVL). Obviously, it's not a footwear manufacturer, but it's undeniably in the same boat with DSW, Genesco and Brown. Shoe Carnival brought home 33 cents per diluted share during Q1 - slightly less than last year's 38 cents, but 8 cents better than what the market was anticipating. Shares were higher by about 8% on the news. (Learn more in our related article Earnings Forecasts: A Primer.)

So... one loss with a "beat" was bullish, one operating earnings "beat" with a net loss was irrelevant, one "met" with a decline was bearish and one "beat" with a decline was bullish. Why do I have the sudden urge to put a blindfold on and start throwing darts?

If The Shoe Fits...
It's unlikely that the market will be excited three months from now if analysts are right and Shoe Carnival posts a loss of one penny. Not that the analysts have been exactly on target, but they have been in the right ball park over the last four quarters. Add in a TTM price-to-earnings ratio of 24.8, and it's even tougher to be enthusiastic. As for Brown and DSW, I honestly think in both cases the market's initial response was the wrong one, and I'd suggest getting out or in appropriately. Investors piled into BWS on Thursday when things weren't as bad as first figured, but those buyers may have overlooked how the company is expected to take another loss next quarter, which will be the third in a row. The following quarter should be better, but analysts are still looking for a loss in the year ending in January, and only are anticipating earnings of 24 cents for the next year. That's pretty pitiful for an $8.00 stock. DSW, on the other hand (and despite the nasty selling), actually met estimates, but plunged anyway because of the company's lowered full-year guidance. Now the company's looking for full-year earnings between 30 and 35 cents versus the market's initial guess of 40 cents. Bad news? Yes, but not news that merited the market's action.

Just To Put This All Into Perspective...
Brown isn't expected to earn a profit at all this fiscal year and it is looking at a 24 cent profit for the year ending in January 2011. If that pans out, the forward P/E more than a year and a half from now would total 33.9. DSW, by comparison, is "only" going to (conservatively) earn 30 cents in the current year, which translates into a nearer-term future P/E of 34.0. Both are painfully high, but the difference is time. At least with DSW, investors are not hoping analysts are right about a future so distant it's almost impossible to predict. Knowing the market eventually figures these things out, I think BWS's pop is an exit opportunity, and DSW's dip is an entry opportunity. (For more, read Can Earnings Guidance Accurately Predict The Future?)

Bottom Line
My favorite of the four, though, was the one that barely moved - Genesco. I can forgive the one-time loss. I'm far more interested in its reliable operating earnings, a projected profit of $1.64 this year and estimated earnings of $1.97 next fiscal year, which convert to price multiples of 15.4 and 12.8, respectively. (For more, see Analyzing Retail Stocks.)

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