Dillard's (DDS) Up 10.8% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Dillard's (DDS). Shares have added about 10.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Dillard's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Dillard's Q4 Earnings Surpass Estimates, Sales Miss
Dillard's reported fourth-quarter fiscal 2020 results, wherein the bottom line surpassed the Zacks Consensus Estimate while sales lagged the same. Earnings benefited from the company’s efforts to effectively manage inventory, reduce costs and enhance liquidity.
Q4 in Details
Dillard's adjusted earnings of $3.43 per share surpassed the Zacks Consensus Estimate of $2.65. Moreover, the bottom line rose 24.7% from $2.75 reported in the year-ago quarter. This uptick can be attributable to improved margins and lower expenses.
Net sales of $1,570 million declined 20.2% from the prior-year quarter and missed the Zacks Consensus Estimate of $1,633 million. Total retail sales (excluding CDI Contractors, LLC) fell almost 19% to $1,521 million. Further, comparable store sales declined roughly 17% year over year.
Solid performance in home and furniture along with shoes and cosmetics was more than offset by weakness in ladies' apparel. Also, the Eastern region performed better than the Central and Western regions.
Notably, retail gross margin improved 171 basis points (bps) from the year-ago quarter, primarily due to lower markdowns. On a consolidated basis, gross margin expanded 127 bps year over year to 31.1%.
Dillard's consolidated SG&A expenses (as a percentage of sales) contracted 240 bps from the prior-year quarter to 21.4%. In dollar terms, SG&A expenses (operating expenses) declined roughly 26.8% to $335.8 million owing to a 30% decline in payroll expenses stemming from lower store operating hours.
Retail operating expenses of $334.3 million declined 26.8% year over year during the quarter. Moreover, as a percentage of sales, it contracted 230 bps to 22%.
Financial Details & Liquidity
Dillard’s ended fiscal 2020 with cash and cash equivalents of $360.3 million, long-term debt and finance leases of $365.8 million, and total shareholders’ equity of $1,441 million.
In fiscal 2020, the company’s cash used for operating activities was $252.9 million. Also, it bought back shares worth $95.6 million in the said time period under its $500-million repurchase program announced in March 2018. As of Jan 30, it had $173.1 million authorization remaining to be bought back under the aforementioned program. Apart from these, management boasts no outstanding borrowings under its existing revolving credit facility of $800 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 1127.5% due to these changes.
VGM Scores
At this time, Dillard's has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Dillard's has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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