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Dillard's Remains an Industry Stronghold

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At a time when many traditional department stores are seeing their businesses ripped out from under them -- a result of disruptive technology and the re-emergence of niche retailers -- one seems to persevere unperturbed. Southeast-based Dillard's (NYSE: DDS  ) reported record-breaking earnings for its second quarter of 2013, and investors found little to complain about, sending shares up substantially. The company holds successful retail operations, in addition to a valuable portfolio of real estate. The question now is: Can the company continue its run, both in the stores and on the market? Let's take a look at recent earnings for clues.

For the second quarter, Dillard's brought in $1.48 billion in net sales, a slight decrease from the $1.488 billion earned in the year-ago quarter. When looking solely at merchandise, though, sales rose from $1.456 billion to $1.459 billion. Comparable store sales ticked up 1%.

Both retail and total gross margins climbed moderately by 10 and 40 basis points, respectively. On the bottom line, the company earned $36.5 million -- $0.79 per share, as compared to $31 million, or $0.63 per share in the year-ago quarter. The latest EPS figures are a company record for the second quarter.

The company's decrease in top-line sales is slightly concerning, suggesting that the sales growth isn't quite as momentous as previously thought, but Dillard's cost management seems to have allowed the more than 25% increase in bottom line earnings, and kept investors happy.

What should investors expect next, though?

Looking ahead and valuation
The average consensus for next quarter puts bottom-line earnings at $1.11 per share. For the year, average estimates are at $7.38 per share.

What is most encouraging about Dillard's' performance is comparing it to peers. Big retailers such as Wal-Mart and Macy's are frightening investors and analysts with weak numbers and tepid forecasts. On Thursday, Wal-Mart management's comments were largely the cause for a broader market sell-off. The fact that Dillard's is showing resilience in a weak sector shows the ability of management to navigate both high tides and low. As the industry improves, Dillard's may remain ahead of the pack.

Looking ahead, watch for continued cost-control efforts and their fruits. This quarter, it was the gross margins that drove earnings. The company should increase its sales for the year, but it is clear the competitive advantage here is in efficiency.

At less than 11 times projected forward earnings, Dillard's is slightly more expensive than some of its peers, but has earned the premium. Recently disappointing retailer Macy's trades a hair under Dillard's at 10.45 times forward earnings, yet doesn't look as encouraging down the line.

Overall, Dillard's appears to be one of the industry's strongest performers, and offers investors, while not discounted, a fair price on its shares.

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9/23/2016 4:02 PM
DDS $59.05 Up +1.63 +2.84%
Dillard's CAPS Rating: **