Dillard's Q4 Earnings Miss Estimates


Battered by lower-than-anticipated top-line performance and higher markdowns, leading fashion apparel, cosmetics and home furnishings retailer, Dillard's Inc.’s (DDS) fourth-quarter fiscal 2013  adjusted earnings declined 6.3% year over year to $2.69 per share. Moreover, it fell short of the Zacks Consensus Estimate of $2.99 per share.

On a reported basis, fourth-quarter earnings came in at $2.71 per share, down from $3.36 in the year-ago comparable quarter.

Sales & Comps

Dillard's net sales (including CDI Contractors LLC or CDI) decreased 3.4% year over year to $2,034.0 million in the quarter and was lower than the Zacks Consensus Estimate of $2,092 million. Merchandise sales, excluding CDI, came in at $2,013 million as against $2,087 million in the year-ago quarter.

The company’s total revenue (including service charges and other income) of $2,078.7 million reflected a decline of 3.5% from $2,154.1 million in the year-ago quarter.

Merchandise comparable store sales (comps) for the thirteen-week period ended Feb 1, 2014 were up 2% from the thirteen-week period ended Feb 2, 2013.

During the quarter, ladies’ accessories and lingerie as well as shoes were the outperforming categories. The best performing region was Central, followed by the East and West.

Operating Results

In the quarter, gross margin from retail operations (excluding CDI) contracted 180 basis points (bps) to 32.8% while consolidated gross margin (including CDI) declined 180 bps to 32.6%. The year-over-year contraction in gross margin was primarily due to higher markdowns.

Dillard's operating expenses for the quarter fell to $439.2 million from $474.9 million in the prior-year quarter, primarily due to an additional week in the fourth quarter of fiscal 2012. Operating expenses as a percentage of sales contracted 90 bps to 21.6% in the quarter.

Other Financial Details

Dillard’s ended the fiscal with cash and cash equivalents of $237.1 million compared with $124.1 million last fiscal. As of Feb 1, 2013, the company’s long-term debt and capital leases improved marginally to $621.5 million from $622.3 million as of Feb 2, 2013.

In the fiscal, the company’s net cash flow from operations was $501.7 million compared with $522.7 million in fiscal 2012.

During the fiscal, Dillard’s bought back 3.9 million shares worth about $301.6 million at a price of $78.30 per share. Currently, the company has about $290.4 million remaining under its ongoing share repurchase authorization.

Store Update

In the fourth quarter, Dillard’s shut down three stores, namely University Mall in Chapel Hill, North Carolina (64,000 square feet), Collin Creek Mall location in Plano, Texas (195,000 square feet) and Twin Peaks Mall location in Longmont, Colorado (90,000 square feet). Including these closures, the company shuttered six stores in fiscal 2013.

As of Feb 1, 2014, Dillard’s had about 278 namesake outlets and 18 clearance centers operating in 29 states and an Internet store at www.dillards.com. Total square footage as of Feb 1, 2014 was 50.5 million.

Fiscal 2014 Outlook

Dillard’s expects fiscal 2014 depreciation and amortization expenses to be about $260 million while rentals are projected at approximately $26 million. Net interest and debt expenses are expected to be nearly $60 million.

Moreover, the company expects to spend about $150 million toward capital expenditure in fiscal 2014, compared with $95 million spent in fiscal 2013.

Other Stocks to Consider

Currently, Dillard’s holds Zacks Rank #4 (Sell). However, some better-performing retailers include Christopher & Banks Corp. (CBK), Macy’s, Inc. (M) and Finish Line Inc. (FINL). Of these, Christopher & Banks has a Zacks Rank #1 (Strong Buy) while Macy’s and Finish Line carry a Zacks Rank #2 (Buy).

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