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Dillard’s (DDS) Stock Plunges on Q2 Loss, View Reiterated

Zacks

Shares of Dillard's Inc. DDS have slumped 15.5% in the pre-market trading session, following the company’s second-quarter fiscal 2017 results, wherein it reported a loss. Well, this marked the company’s second straight quarter of bottom-line miss.

Q2 Numbers

The company reported a loss of 58 cents per share, which compares unfavorably with the year-ago period earnings of 35 cents, as well as the Zacks Consensus Estimate of 21 cents. Management blamed the quarterly loss on considerable markdowns in the quarter.

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

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

Dillard's total revenue (including service charges and other income) of $1,463.8 million dropped 1.7% from the year-ago quarter, while it surpassed the Zacks Consensus Estimate of $1,417.4 million.

Dillard's net sales (including CDI Contractors LLC or CDI) dipped 1.7% year over year to $1,427.2 million in the reported quarter. Merchandise sales, excluding CDI, slipped 1% to roughly $1,385 million. Merchandise comparable-store sales for the 13-week period ended Jul 29, 2017 were also down 1% from the year-ago period.

While ladies’ apparel category displayed slight improvement in the quarter, sales at the juniors and children’s apparel, ladies’ accessories, lingerie and men’s apparel and accessories categories were in line with the company’s trend. Further, Dillard’s performance remained soft across shoes, cosmetics, home and furniture. The Eastern region was the best performer, trailed by the Western and Central regions, respectively.

Consolidated gross margin contracted 217 basis points (bps), while gross margin from retail operations (excluding CDI) fell 235 bps due to higher markdowns.

Dillard's SG&A expenses (as a percentage of sales) escalated 100 bps to 28.2%. In dollar terms, SG&A expenses climbed 1.7% to $401.6 million.

Financial Details

Dillard’s ended the quarter with cash and cash equivalents of $135.1 million, long-term debt and capital leases (excluding current portions) of $368.8 million and total shareholders’ equity of $1,602.7 million. Merchandise inventories improved 1.8% year over year to $1,527.4 million.

During the first half of the fiscal, the company generated net cash flow from operations of $22.1 million and incurred $4.5 million in dividends. It bought back 1.4 million shares for $69.5 million in the second quarter. On a year-to-date basis, Dillard’s repurchased 3.1 million shares for $160.6 million. With this, the company has authorization worth $93.2 million remaining as of Jul 29.

Store Update

As of Jul 29, 2017, Dillard’s had about 268 namesake outlets and 25 clearance centers operating in 29 states, as well as an online store at www.dillards.com. Dillard’s total square footage, as of Jul 29 was 49.1 million.

Fiscal 2017 View Reaffirmed

Dillard’s retained its fiscal 2017 forecasts. The company expects rentals of approximately $28 million. In fiscal 2016, the company’s rentals amounted to $26 million. Net interest and debt expenses are anticipated to be nearly $63 million, flat with fiscal 2016 level. Further, the company projects capital expenditures of about $125 million for fiscal 2017 compared with $105 million in fiscal 2016. Depreciation and amortization expenses for fiscal 2017 are expected at $240 million compared with $244 million in the prior year.

Dillard’s currently carries a Zacks Rank #3 (Hold). The stock has jumped 17% on a year-to-date basis, faring better than the industry’s 24.3% slump. However, today’s performance may turn the tables around for the stock.




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