What happened

Shares of Dillard's (NYSE:DDS) surged today after the department-store chain turned in an impressive fourth-quarter earnings report. The retailer beat earnings expectations and posted comparable sales growth of 2%, which was enough to send the stock up 19.8% on the day.

So what 

The closely held department-store operator said revenue in the key holiday quarter slipped from $2.06 billion to $2.01 billion, but that was primarily because the year-ago quarter included an extra week. The top-line result missed estimates of $2.08 billion. Still, comparable sales growth of 2% for the quarter and the full year shows the company's fundamental sales performance remains solid.

A clothing department in a department store.

Image source: Getty Images.

Gross margin in its retail business -- Dillard's also owns a small construction business -- fell from 31% to 30.3%, though selling, general, and administrative expenses improved by 40 basis points. With the help of an aggressive share buyback program, adjusted earnings per share rose from $2.82 a year ago to $3.22, which easily beat expectations of $2.76.

In brief remarks, CEO William T. Dillard II said simply:

Our 2% comparable store sales increase for 2018 is comprised of four quarters of positive sales. For the year, we held retail gross margin and operating expenses flat as a percent of sales. Additionally, during 2018, we returned $139 million to shareholders through share repurchases and dividends.

Now what

Dillard's doesn't provide guidance, nor does it do earnings calls, so investors have no way of knowing if 2018's momentum will carry into the current year. Still, investors should be encouraged by the stable comparable sales growth over the course of the year and the adjusted earnings-per-share growth in both the fourth quarter and the full year. 

After today's surge, the stock trades at a P/E of 13, making it more expensive than rivals like Macy's, but on a free cash flow basis, Dillard's is cheaper with a P/FCF ratio around 9. The company is more conservative than many of its competitors, paying only a small dividend and focusing its cash flow on share buybacks and debt retirement. With no store openings planned, that strategy should favor investors if the macroeconomic climate remains strong and the company can continue delivering solid comparable sales and earnings growth.

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