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4 Reasons to Hold on to Dillard's (DDS) Stock at the Moment

Zacks Equity Research

Dillard’s Inc. DDS is favored due to its solid surprise trend and robust long-term strategies. The company’s prospects remain solid, backed by inventory management initiatives, trendy product offerings and shareholder-friendly moves. Its efforts to capitalize on growth opportunities in physical stores and e-commerce also bode well.

These positives have aided the stock to surge 9% in the past three months against the industry’s decline of 8.9%. Further, this Zacks Rank #3 (Hold) stock gained momentum as its top and bottom lines beat estimates in the fourth quarter of fiscal 2018. Consequently, the stock has risen 3.4% in the past month against the industry’s decline of 0.4%.

 



Additionally, the company has a VGM Score of A. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best investment opportunities.

Let's get a detailed view of factors aiding Dillard’s performance.

Growth Initiatives Look Promising

Dillard’s remains well poised to benefit from growth opportunities in its brick-and-mortar stores and e-commerce business, which are likely to help retain existing customers and attract new ones. On the store front, the company will gain by enhancing brand relations, focusing on in-trend categories, store remodels and rewarding store personnel. Then again, some of the strategies to boost growth across its e-commerce business include enhancing merchandise assortments and effective inventory management.

As of Feb 2, 2019, merchandise inventories improved 4.4% year over year to $1,528.4 million. We expect the company to gain from its focus on increasing productivity at existing stores, developing a leading omni-channel platform and enhancing its domestic operations in the years ahead.

Robust Surprise Trend

Dillard’s delivered seventh straight sales beat in fourth-quarter fiscal 2018 while its earnings surpassed estimates in five of the last six quarters. Revenues benefited from comparable store sales (comps) growth of 2% and strong performance across most categories. Notably, the company witnessed robust performance in home and furniture categories along with momentum in cosmetics, and men's clothing and accessories. Moreover, the eastern region performed exceedingly well, followed by western and central regions.

Estimate Trend Up

Backed by the robust results, the company’s earnings estimates for fiscal 2019 and 2020 have moved up in the past month. The Zacks Consensus Estimate for fiscal 2019 increased 0.6% to $5.53 while it moved up 6.2% to $4.94 for fiscal 2020.

Dillard's, Inc. Price, Consensus and EPS Surprise

 

Dillard's, Inc. Price, Consensus and EPS Surprise | Dillard's, Inc. Quote

Shareholder Rewards

Dillard’s continues to generate strong free cash flows and focuses on returning value to shareholders. In fiscal 2018, the company generated operating cash flow of $367.2 million. As part of its commitment to reward shareholders, the company paid $139 million to shareholders in fiscal 2018 through cash dividends of $11.1 million and share repurchases worth $127.9 million.

During the fiscal fourth quarter, the company bought back roughly 0.6 million shares for $36 million under its $500-million repurchase program announced in March 2018. As of Feb 2, 2019, it had share buyback authorization worth $406.9 million remaining under its program. The company has also declared a cash dividend of 10 cents per share, which is payable on May 6.

What Holds Us Back?

Despite strong top and bottom-line trends, the company’s earnings and sales dipped year over year in the fiscal fourth quarter mainly due to the impact of higher markdowns on earnings and margins. Consolidated gross margin declined more than gross margin for retail operations, which was affected by increased markdowns. Due to the likelihood that markdowns will continue to be high, we remain on the sidelines.

3 More Retail Stocks Worth a Look

Abercrombie & Fitch, Co. ANF has long-term earnings per share growth rate of 15.3% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Foot Locker, Inc. FL has long-term earnings per share growth rate of 9.2% and a Zacks Rank #1.

Zumiez Inc. ZUMZ has long-term earnings per share growth rate of 12.5% and a Zacks Rank #1.

Zacks' Top 10 Stocks for 2019

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