A month has gone by since the last earnings report for Dillard's (DDS). Shares have added about 2.8% 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 Q1 Earnings In Line, Sales Miss Estimates
Dillard's reported in-line earnings in first-quarter fiscal 2019 while sales lagged estimates. Furthermore, the bottom line declined year over year due to higher markdowns, which significantly impacted margins. Meanwhile, sales were marginally up from the prior-year quarter.
Dillard's reported adjusted earnings per share of $2.77, in line with the Zacks Consensus Estimate. However, earnings declined 4.2% from adjusted earnings of $2.89 in the prior-year quarter.
Net sales were $1,465 million, up 0.5% from the year-ago quarter but missed the Zacks Consensus Estimate of $1,484 million. Excluding services and other income, sales rose 0.4% to $1,497.9 million. Merchandise sales increased 0.7% to $1,421 million. Sales in comparable stores for the 13-week period (ended May 4, 2019) remained flat with the year-ago period.
During the fiscal first quarter, the company witnessed robust performance in juniors' and children's apparel categories along with momentum in home and furniture, and men's apparel and accessories. However, sales remained soft for shoes and cosmetics categories. Notably, the eastern region performed exceedingly well, followed by central and western regions.
Consolidated gross margin decreased 134 basis points (bps) to 29.6%, which marked a steeper decline when compared with retail operations. Gross margin from retail operations contracted 141 bps mainly due to higher markdowns.
Dillard's SG&A expenses (as a percentage of sales) were down 20 bps from the prior-year quarter to 27.6%. In dollar terms, SG&A expenses (operating expenses) decreased 0.2% to $405.1 million.
Dillard’s ended the reported quarter with cash and cash equivalents of $139.8 million, long-term debt and finance leases of $367.2 million, and total shareholders’ equity of $1,736.9 million. As of May 4, 2019, merchandise inventories improved 2.9% year over year to $1,832.6 million.
In the fiscal first quarter, the company generated operating cash flow of $48.3 million. Further, it remained committed to rewarding shareholders with dividends and buybacks.
During the fiscal first quarter, the company bought back roughly 0.2 million shares for $17.4 million under its $500-million repurchase program announced in March 2018. As of May 4, 2019, it had share buyback authorization worth $389 million remaining under its program.
As of May 4, 2019, Dillard’s had about 261 namesake outlets and 28 clearance centers, operating in 29 states alongside an online store at www.dillards.com. The company’s total square footage as of May 4 was 48.7 million.
Fiscal 2019 View
Dillard’s provided its guidance for fiscal 2019. The company expects rentals of approximately $29 million, flat with the fiscal 2018 level. Net interest and debt expenses are anticipated to be $46 million, down from $53 million recorded in fiscal 2018. Furthermore, the company projects capital expenditure of about $140 million for fiscal 2019 compared with $137 million spent last year.
For fiscal 2019, depreciation and amortization expenses are projected to be $225 million compared with $224 million in fiscal 2018.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -43.65% due to these changes.
Currently, Dillard's has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Dillard's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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