Please ensure Javascript is enabled for purposes of website accessibility

Why Dillard's Stock Was Going Up on Friday

By Jon Quast - May 15, 2020 at 3:20PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company reported a massive net loss, but most stores could be back open soon.

What happened

Shares of department-store chain Dillard's (DDS 11.20%) were climbing higher on Friday, after the company reported earnings for the first quarter of 2020. As 2:40 p.m. EDT, the stock was up 15%. 

Don't misunderstand today's stock move; the numbers for Dillard's are quite ugly. Total quarterly retail sales fell a whopping 47% year over year.

A closed sign hangs on a door.

About half of Dillard's locations remain closed. Image source: Getty Images.

So what

Dillard's has 285 store locations, and they were all closed by April 9 because of the coronavirus. Because of this, the company discounted merchandise to accelerate e-commerce sales. As a result, inventory is down 14% from last year -- which is good. After all, it only gets harder to move outdated merchandise the longer it sits there. But this inventory reduction came at a cost. 

Cost of sales as a percentage of revenue was 88% for the quarter. In other words, for every $100 in merchandise Dillard's sold, it cost them $88 before accounting for other expenses. In the first quarter of 2019, cost of sales was much better, at 63% of revenue. 

This disparity reflects the aggressive discounting employed by Dillard's. And it hit profitability hard. The company reported a net loss of $162 million, or $6.94 per share. 

Even after today's gain, Dillard's stock still sits sharply down from 52-week highs.

DDS Chart

DDS data by YCharts

Now what

There's really nothing in the Q1 report that would explain the rise in Dillard's stock today, other than investors hoping for a turnaround in coming quarters. Since May 5, the company has started reopening. It has reopened 149 locations with limited hours, and plans to reopen 116 additional stores soon. 

As far as hoping for a turnaround, Dillard's is in a better position than many retail stock peers. It owns the majority of its real estate, has $70 million in cash on the balance sheet, and doesn't have long-term debt coming due until 2023. From a financial perspective, it's positioned to survive the COVID-19 pandemic shutdown.

That said, shareholders should be anxiously looking forward to a fully reopened Dillard's. It can't continue piling up losses by reducing inventory the way it did in Q1.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Dillard's, Inc. Stock Quote
Dillard's, Inc.
$276.40 (11.20%) $27.84

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.