Dillard's (DDS) Falls Despite Narrower Q2 Loss and Sales Beat
Shares of Dillard's Inc. DDS slumped 8.7% yesterday despite reporting top- and bottom-line beat for second-quarter fiscal 2018. Investors were probably not happy with the company’s loss per share results, which led to the decline in shares. Another reason behind the stock’s fall can be the general weakness seen in department store stocks, including Macy’s M, which also fell considerably following its robust earnings show on Aug 15.
Albeit, Dillard’s shares have increased 26.2% year to date, reflecting gains from its strategic actions coupled with impressive surprise history. Despite recording growth, this Zacks Rank #3 (Hold) stock has underperformed the industry’s increase of 34%.
Notably, Dillard’s boasts a robust surprise history, having reported bottom-line beat in the last four quarters and positive sales surprise in the trailing five quarters, including the fiscal second quarter. Moreover, the company’s constant efforts to capitalize on growth opportunities in its brick-and-mortar stores and e-commerce business remain encouraging. Its focus on increasing productivity, enhancing domestic operations and developing omni-channel platform is also likely to strengthen the customer base.
Dillard's reported loss per share of 10 cents, narrower than loss of 58 cents in the prior-year quarter. The bottom line compared favorably with the Zacks Consensus Estimate of loss of 41 cents.
Dillard's, Inc. Price, Consensus and EPS Surprise
Dillard's, Inc. Price, Consensus and EPS Surprise | Dillard's, Inc. Quote
Total revenues (including service charges and other income) were $1,500.7 million, which improved 2.5% from the year-ago quarter and exceeded the Zacks Consensus Estimate of $1,472 million.
Dillard's net sales (including CDI Contractors LLC or CDI) rose 2.9% year over year to $1,468 million in the reported quarter. Merchandise sales, excluding CDI, increased roughly 1.7% to $1,409 million. Sales in comparable stores for the 13-week period (ended Aug 4, 2018) inched up 1% from the year-ago period.
During the fiscal second quarter, men's apparel and accessories, and juniors' and children's apparel categories displayed an above-average performance. While sales for home and furniture and cosmetics were in-line with the trend, performance of ladies' accessories and lingerie were modestly below average. Further, softness in shoes and ladies' apparel slightly offset gains from the aforementioned categories. Notably, the western region performed slightly above trend, followed by the eastern region, which was in-line with trend. However, the central region witnessed softness.
Consolidated gross margin expanded 127 basis points (bps) while gross margin from retail operations (excluding CDI) expanded 163 bps, mainly due to reduced markdowns.
Dillard's SG&A expenses (as a percentage of sales) were down 20 bps from last year to 27.8%. In dollar terms, the SG&A expenses rose 2.2% to $408.4 million, driven by higher selling payroll.
Dillard’s ended the reported quarter with cash and cash equivalents of $116.5 million, long-term debt and capital leases of $367.7 million, and total shareholders’ equity of $1,674.5 million. Merchandise inventories improved 5% year over year to $1,603.3 million.
In the fiscal second quarter, the company further strengthened its balance sheet by paying down debt of $161 million, pertaining to the principal remaining on 7.13% unsecured notes that matured on Aug 1, 2018.
In the first half of fiscal 2018, the company used net cash of $15.4 million in operations. However, it remained committed to rewarding shareholders with dividends and buybacks. The company paid $5.6 million in dividends in the first half of fiscal 2018.
Moreover, the company bought back roughly 39,400 shares for $3.1 million in second-quarter fiscal 2018 under its $500-million repurchased program announced in March 2018. Year-to-date, the company has bought back 518,000 shares for $37.9 million under its February 2016 and March 2018 programs. As of Aug 4, 2018, the company had $496.9 million worth of share buyback authorization remaining under its March 2018 program.
As of Aug 4, 2018, Dillard’s had about 267 namesake outlets and 25 clearance centers operating in 29 states alongside an online store at www.dillards.com. Its total square footage, as of Aug 4, was 49.1 million.
Fiscal 2018 View
Dillard’s reiterated its guidance for fiscal 2018. The company expects rentals of approximately $29 million compared with $28 million in fiscal 2017. Net interest and debt expenses are anticipated to be $54 million versus $63 million in fiscal 2017. Furthermore, it continues to project capital expenditure of about $140 million for fiscal 2018 compared with $130 million spent last year.
For fiscal 2018, depreciation and amortization expenses are projected to be $225 million compared with $232 million in fiscal 2017.
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Abercrombie & Fitch ANF delivered an average positive earnings surprise of 32.3% in the trailing four quarters. The company has a long-term earnings growth rate of 12.5% and carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Macy’s delivered an average positive earnings surprise of 19.9% in the trailing four quarters. The company has a long-term earnings growth rate of 8.5% and carries a Zacks Rank #2 (Buy).
Kohl’s KSS delivered an average positive earnings surprise of 9.4% in the trailing four quarters. It has a long-term earnings growth rate of 6.7% and carries a Zacks Rank #2.
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