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Dillard's Lost 15% in 3 Months: What's Behind the Downside?

Zacks Equity Research

Dillard’s, Inc. DDS has been hit hard by the challenging trends in the retail sector, particularly the apparel space. This is because the retail landscape is undergoing a fundamental change with technology playing a major role and the customers’ preferences shifting from offline to online.

Consequently, the company’s earnings have lagged the Zacks Consensus Estimate in six of the trailing eight quarters. In the last four quarters, this leading departmental store chain witnessed an average negative earnings surprise of 100.8%.

In fact, a look upon Dillard’s share price in the past three months reveals that this Zacks Rank #5 (Strong Sell) stock has declined 15.2%, wider than the Retail – Regional Department Stores industry’s fall of 7%. Currently, the industry is placed at the bottom 20% (206 out of 256) of the Zacks classified industries.


Additionally, the company’s dismal run in the bourses is quite evident from its Momentum Score of D.

Let’s Delve Deeper

Dillard’s continued its negative earnings surprise trend in second-quarter fiscal 2017 as well. Evidently, the company witnessed a loss of 58 cents per share, which compares unfavorably with the year-ago period earnings of 35 cents as well as the Zacks Consensus Estimate of 21 cents. Management blamed the quarterly loss on considerable markdowns in the quarter. While, consolidated gross margin contracted 217 basis points (bps), the same from retail operations (excluding CDI) fell 235 bps due to higher markdowns to manage inventories.

Apart from this, results in the quarter were also hurt by lower sales. Markedly, the top line dipped 1.7% owing to 1% decline in merchandise comparable store sales as the result of soft sales across the shoes, cosmetics, home and furniture categories. Going forward, we expect these factors to persist along with a tepid retail environment, which remain threats to the company.

Furthermore, Dillard’s operates in the highly competitive retail merchandise industry. Although it is a large regional department store, the company has many rivals at the national level competing with its individual stores including specialty, off-price, discount, Internet and mail-order retailers. Therefore, on losing its competitive position, the company might face downward pressure on prices, lower demand for its products as well as reduced margins.

Also, the company is unable to capitalize on new business opportunities consequently losing much of its market share.

Dillard’s Vs Industry

Bottom Line

Though Dillard’s is capitalizing on growth opportunities in its brick-and-mortar stores and e-commerce business besides developing an omni-channel platform, the recent dismal performances suggest trouble down the road.

Want to Know About the Gems in the Retail Space?

Some better-ranked stocks in the Retail space include Zumiez Inc. ZUMZ, Abercrombie & Fitch Co. ANF and DSW Inc. DSW sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Zumiez, with a long-term earnings growth rate of 18%, has pulled off an average positive earnings surprise of 27.1% in the trailing four quarters.

Abercrombie, with a long-term earnings growth rate of 14%, has delivered positive earnings surprise of 52.9% in the last quarter.

DSW, with a long-term earnings growth rate of 6.3%, has come up with an average positive earnings surprise of 14.3% in the trailing four quarters.

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