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Factors Likely to Influence Dillard's (DDS) Earnings in Q4

Zacks Equity Research

Dillard's, Inc. DDS is likely to witness a marginal decline in the bottom line when this departmental store chain reports fourth-quarter fiscal 2018 numbers. In the preceding quarter, this Arkansas-based company had posted dismal earnings, which also fell short of the Zacks Consensus Estimate. However, the company delivered average four-quarter positive earnings surprise of 21.2%.

Coming back to the quarter under review, we note that the Zacks Consensus Estimate for earnings is pegged at $2.80, reflecting a dip of 0.7% from $2.82 earned in the year-ago period. Notably, estimates moved north over the past seven days. For revenues, the consensus mark stands at $2,003 million, reflecting nearly 5% decline from the year-ago quarter number.

Dillard's, Inc. Price, Consensus and EPS Surprise

Dillard's, Inc. Price, Consensus and EPS Surprise | Dillard's, Inc. Quote

Factors That Hold the Key to Dillard's Performance

In the retail apparel space, Dillard's remains prone to the challenging trends due to changing customer preferences. In the last reported quarter, increased markdowns significantly dented margins and weighed on the company’s bottom-line performance. Consolidated gross margin reflected greater decline than gross margin for retail operations as volume for the lower-margin CDI business improved. Stiff competition in the industry remains an added concern. These headwinds are likely to persist in the to-be-reported quarter.

For fiscal 2018, the company had earlier projected rentals of approximately $29 million. While net interest and debt expenses are anticipated to be $54 million, depreciation and amortization expenses are projected to be $225 million. Further, it expects capital expenditures of about $140 million for the fiscal year.

Nevertheless, Dillard’s is expected to benefit from growth opportunities in both its brick-and-mortar stores and e-commerce business. On the store front, the company will gain by enhancing brand relations, focusing on in-trend categories and store remodels, and rewarding store personnel. Meanwhile, some of the strategies to boost its e-commerce business include enhancement of merchandise assortments and effective inventory management.

Further, the company has been witnessing higher comparable store sales backed by exclusive merchandise offerings and robust store-growth efforts. Solid performance across most of its product categories also drives optimism.

What Does the Zacks Model Unveil?

Our proven model does not conclusively show that Dillard's is likely to beat estimates in fourth-quarter fiscal 2018. This is because a stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Dillard's has a Zacks Rank #3 that increases the predictive power of earnings beat, an Earnings ESP of -2.68% makes surprise prediction difficult.

3 Stocks With Favorable Combination

Here are three companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Abercrombie & Fitch ANF has an Earnings ESP of +0.94% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

American Eagle Outfitters, Inc. AEO has an Earnings ESP of +0.60% and a Zacks Rank #2.

The Home Depot, Inc. HD has an Earnings ESP of +1.22% and a Zacks Rank #3.

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