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Dillard's (DDS) Rises on Q3 Earnings Beat & Robust Margins

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Zacks Equity Research
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Shares of Dillard's Inc. DDS rose more than 4% in the after-hours trading session on Nov 12, following its third-quarter fiscal 2020 results, wherein the bottom line surpassed the Zacks Consensus Estimate while sales lagged the same. The company also noted that it continues to witness adverse impacts of COVID-19 and as a result, has refrained from providing fiscal 2020 guidance.

Q3 Numbers

Dillard's reported adjusted earnings of $1.49 per share against the Zacks Consensus Estimate of a loss of 86 cents. Moreover, the bottom line reflected a significant improvement from 23 cents reported in the year-ago quarter. This uptick can be attributable to improved margins and lower expenses.

Net sales of $1,052.1 million declined 26.1% from the prior-year quarter. Excluding services and other income, sales fell 35.4% year over year. The Zacks Consensus Estimate for revenues was $1,226 million. Total retail sales (excluding CDI Contractors, LLC) fell almost 25% to $994.6 million. Further, comparable store sales declined roughly 24% year over year.

Solid performance in home and furniture along with ladies' accessories, lingerie 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 210 basis points (bps) from the year-ago quarter, primarily due to lower markdowns. On a consolidated basis, gross margin expanded 249 bps year over year to 35.7%.

Dillard's consolidated SG&A expenses (as a percentage of sales) rose 90 bps from the prior-year quarter to 31%. In dollar terms, however, SG&A expenses (operating expenses) declined roughly 24% to $265.8 million owing to a 28% decline in payroll expenses stemming from lower store operating hours.

Retail operating expenses of $316.7 million declined 24% year over year during the quarter. Meanwhile, as a percentage of sales, it expanded 70 bps to 31.9%.

Looking at fiscal 2020, the company continues to expect a net operating loss.

Store Update

During the quarter, Dillard’s announced plans to close its store at Paradise Valley Mall in Phoenix, AZ, by the end of fiscal 2020. The company operated 250 Dillard’s locations and 32 clearance centers, spanning 29 states, as of Oct 31, 2020.

Dillards, Inc. Price, Consensus and EPS Surprise

Dillards, Inc. Price, Consensus and EPS Surprise
Dillards, Inc. Price, Consensus and EPS Surprise

Dillards, Inc. price-consensus-eps-surprise-chart | Dillards, Inc. Quote

Financial Details & Liquidity

Dillard’s ended third-quarter fiscal 2020 with cash and cash equivalents of $61.1 million, long-term debt and finance leases of $366 million, and total shareholders’ equity of $1,380.8 million.

In the first nine months of fiscal 2020, this Zacks Rank #4 (Sell) company’s cash used for operating activities was $65.5 million. However, it remained committed to rewarding shareholders with share buybacks.

During the fiscal third quarter, the company bought back 0.6 million shares for $19.5 million under its $500-million repurchase program announced in March 2018. As of Oct 31, it had $173.1 million authorization remaining to be bought back under the aforementioned program.

Price Performance

In the past three months, shares of the company have gained 53%, outperforming the industry’s growth of 7%. Dillard’s currently carries a Zacks Rank #4 (Sell).

3 Retail Stocks to Watch

Dollar General Corporation DG, which flaunts a Zacks Rank #2 (Buy), has an expected long-term earnings growth rate of 11.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Target Corporation TGT has an expected long-term earnings growth rate of 7.2% and a Zacks Rank #2.  

Ross Stores ROST, with a Zacks Rank #2, has an expected long-term earnings growth rate of 10%.

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