Why the Bull Market Outperforms These Two Stocks

The stock market’s big rally in November has many on Wall Street expecting record highs in the near future. With a Santa Claus rally likely before the end of 2023, investors are turning their attention to stocks with the greatest potential to benefit from a broader rally.

But for individual stocks, disappointing performance on the business side could put the company out of the race to join the rally in the overall stock market. That turned out to be true. designer brands (DBI -32.55%) and Daktronics (doctor -10.93%) Shareholders lost confidence following the company’s most recent financial results on Tuesday. Here’s what these two companies said to give investors pause.

Designer Brands anticipates challenging times ahead.

Shares of the designer brand plunged 31% in premarket trading early Tuesday. The shoe and accessories retailer gave investors bad news for its fiscal third quarter, which ended Oct. 28, and expects more problems ahead during the holiday shopping season.

Designer Brands’ fiscal third-quarter sales fell 9% year-over-year to $786 million, and comparable sales were down 9.3% from year-ago levels. Gross profit deteriorated slightly, but adjusted net income was $14.8 million, down more than two-thirds from the same quarter last year. This resulted in disappointing adjusted earnings of $0.24 per share, well below the expectations many had expected for better results in the previous quarter.

CEO Doug Howe blamed the designer brand’s problems on a combination of unusually warm weather for the first time since the COVID-19 pandemic began in early 2020 and a general contraction in the footwear market. Howe predicted that macroeconomic pressures would not ease. Soon the shoe company is adjusting its inventory assortment and working to market more effectively.

This led Designer Brands to reduce its guidance for all of 2023. Now the company has cut its earnings estimate from $0.80 per share to a new range of $0.40 to $0.70 per share after seeing sales decline by a high-single-digit percentage. This doesn’t mean a particularly happy holiday season for Designer Brands, and shareholders don’t seem willing to stick around to see what’s under the tree until the next release.

Daktronics did not emerge victorious.

Elsewhere, Daktronics shares fell 10%. The scoreboard and electronic display operator reported financial results for the second quarter of the fiscal year ended Oct. 28, and investors were unhappy with a decline in new orders despite improved current business metrics.

At first glance, Daktronics appeared to have had a successful quarter. Sales increased 6% year over year to $199 million. The company recorded adjusted net income of $12.8 million, reversing the prior year’s loss and delivering adjusted earnings of approximately $0.28 per share. That’s well ahead of the $0.12 per share consensus among those who follow the stock.

But Daktronics has seen its product order backlog fall by more than a third to $307 million over the past 12 months. CEO Reece Kurtenbach attributed the decline to efforts to reduce lead times, but order flow in the quarter was flat compared to the prior year period. In particular, orders for commercial and live event products decreased significantly due to increased demand in transportation and Daktronics’ international segment.

But even after today’s drop, Daktronics’ stock has more than quadrupled over the past year. With live events returning as scheduled, demand for Daktronics products is stabilizing, which is good news for long-term investors even though the stock price fluctuates from time to time.