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Things to Determine Fate of Dillard's (DDS) in Q2 Earnings

Zacks Equity Research

Dillard’s, Inc. DDS is expected to continue registering a year-over-year decline in the top line when it reports second-quarter fiscal 2020 numbers. The company has been witnessing soft sales trends in the past few months as COVID-19 has impacted all aspects of its business, with significant impacts on Mall business in general and department stores in particular. The Zacks Consensus Estimate for revenues of $1,032 million indicates a 31.4% decline from the year-ago quarter figure.

Moreover, we note that in the trailing four quarters, the company’s bottom line underperformed the Zacks Consensus Estimate by 85.9%, on average. The Zacks Consensus Estimate for second-quarter loss has narrowed to $4.54 in the past seven days from a loss of $4.79 mentioned earlier. Nonetheless, this suggests a significantly wider loss from a loss of $1.74 reported in the year-ago quarter.

Key Factors to Note

With the lifting of restrictions, Dillard’s started reopening stores since the beginning of May. On its last earnings call, the company stated that nearly 241 Dillard’s stores and 29 clearance stores will be operational by May 22. It noted that sales at the re-opened stores had been picking momentum, though at a slow pace, which is likely to have partly contributed to the top line in second-quarter fiscal 2020. As stores are re-opening, the company is expected to have made purchasing decisions based on consumer behavior so as to align purchases with sales trends, which must have reflected in its inventory levels.

Further, it is likely to have benefited from strong e-commerce sales trends in the to-be-reported quarter through its ship-from-store capability. Though gains from the re-opening of stores and the e-commerce business are expected to get reflected in the results, we note that growth is likely to have been slow-paced due to limited resources with consumers and the continuity of stay-at-home trend.

Dillards, Inc. Price and EPS Surprise

 

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

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

However, the return of furloughed employees to stores is likely to lead to a rise in payroll expenses during the fiscal second quarter. Moreover, the company has been grappling with elevated SG&A expenses and retail operating expenses, which are likely to have affected its bottom line in the second quarter of fiscal 2020.

Additionally, its aggressive measures to reduce inventory through increased markdowns and discounts are expected to have weighed on retail gross margin in the fiscal second quarter.

Zacks Model

Our proven model does not conclusively predict an earnings beat for Dillard’s this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Dillard’s carries a Zacks Rank #3, its Earnings ESP of -1.45% makes surprise prediction difficult.

3 Stocks With Favorable Combination

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

Dollar General Corporation DG presently has an Earnings ESP of +2.90% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Home Depot, Inc. HD currently has an Earnings ESP of +17.13% and a Zacks Rank #2.

The Kroger Co. KR currently has an Earnings ESP of +4.52% and a Zacks Rank #2.

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