Dillard's (DDS) Q3 Earnings Surpass Estimates, Sales Miss
Dillard's Inc. DDS posted third-quarter fiscal 2023 results, wherein the bottom lines surpassed the Zacks Consensus Estimate, while sales missed. This marked the company’s 11th straight quarter of bottom-line beat. Results gained from better inventory management and strong consumer demand. However, DDS sales and earnings declined year over year.
Adjusted earnings of $9.49 per share significantly surpassed the Zacks Consensus Estimate of $7.06. However, the bottom line declined 13.4% from the year-ago quarter's $10.96 per share.
Net sales of $1,476.4 million decreased 4.4% from the prior-year quarter and missed the Zacks Consensus Estimate of $1,509 million.
Dillard’s shares declined 5.4% yesterday, driven by the soft third-quarter fiscal 2023 performance. Shares of the Zacks Rank #3 (Hold) company have lost 19.8% in the past three months compared with the industry's decline of 18.4%.
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Q3 Details
Total retail sales (excluding CDI Contractors, LLC) fell 6% year over year to $1,409 million. Comparable store sales also declined 6% year over year. Retail sales were affected by the challenging sales environment during the quarter, particularly the weakness experiences at the start of September.
Our model had predicted a comps decline of 4.7% for the fiscal third quarter. The adverse performance compared to our estimate can be attributed to the tough retail environment in the quarter, with weakness in September.
In the quarter, the company witnessed robust sales in cosmetics, and home and furniture categories. On the flip side, juniors’ and children’s apparel was among the underperforming categories.
Dillard's, Inc. Price, Consensus and EPS Surprise
Dillard's, Inc. price-consensus-eps-surprise-chart | Dillard's, Inc. Quote
The consolidated gross margin contracted 110 basis points (bps) year over year to 43.5% in the fiscal third quarter. The retail gross margin of 45.3% reflected a year-over-year decline of 40 bps, driven by gross margin declines in the men’s apparel and accessories, juniors’ and children’s apparel, and shoes categories. Additionally, the company witnessed a moderate decline in ladies’ accessories and lingerie. This was offset by decent gross margin growth in the home and furniture category, while cosmetics was flat.
Dillard's consolidated SG&A expenses (as a percentage of sales) expanded 180 bps to 28.6% from the prior-year quarter's 26.8%. In dollar terms, SG&A expenses (operating expenses) grew 1.9% to $421.8 million. The increase in operating expenses is mainly attributed to higher payroll and payroll-related expenses.
Our model had predicted SG&A expenses (as a percentage of sales) to increase 190 bps in the fiscal third quarter. In dollar terms, we expected SG&A expenses to increase 2.5% year over year to $424.3 million.
Financial Details
Dillard’s ended the quarter with cash and cash equivalents of $842 million, a long-term debt of $321.4 million, and a total shareholders' equity of $1,813.6 million. The company provided $447.1 million of net cash from operating activities as of Oct 28, 2023.
Capital expenditure for fiscal 2023 is likely to be $140 million, suggesting growth from the year-ago figure of $120 million.
In the fiscal third quarter, the company repurchased 151,000 Class A common stock for $48 million, under its existing repurchase program. As of Oct 28, DDS had an authorization worth $410.2 million remaining under its share repurchase program announced in May 2023.
Store Update
As of Oct 28, 2023, DDS operated 273 full-line Dillard’s stores and 27 clearance stores in 29 states and on dillards.com.
Outlook
For fiscal 2023, Dillard’s expects depreciation and amortization of $180 million, whereas it reported $188 million in the prior year. The company expects a net interest and debt (income) of ($3) million, whereas it recorded expenses of $31 million in the prior year. DDS anticipates rentals of $22 million for fiscal 2023.
Stocks to Consider
Here are some better-ranked stocks that you may want to consider, namely, American Eagle Outfitters AEO, Ross Stores ROST and Deckers Outdoor DECK.
American Eagle, a specialty retailer of casual apparel, accessories and footwear, currently flaunts a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter surprise of 43.2%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for American Eagle’s current fiscal year’s revenues and earnings suggests growth of 2.4% and 36.1%, respectively, from the year-ago quarter’s reported figures.
Ross Stores, an off-price retailer of apparel and home accessories, currently has a Zacks Rank #2 (Buy). ROST has a trailing four-quarter earnings surprise of 11.4%, on average.
The Zacks Consensus Estimate for Ross Stores’ current financial year’s sales and EPS suggests growth of 7.1% and 19.4%, respectively, from the year-ago quarter’s reported figures.
Deckers Outdoor is a leading designer, producer and brand manager of innovative, niche footwear and accessories developed for outdoor sports and other lifestyle-related activities. The company carries a Zacks Rank #2 at present.
The Zacks Consensus Estimate for Deckers Outdoor’s current fiscal year’s sales and EPS suggests growth of 11.1% and 20.2%, respectively, from the year-ago quarter’s reported figures. DECK has a trailing four-quarter earnings surprise of 26.3%, on average.
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