Dillard's (DDS) Q4 Earnings & Sales Beat, Soft Comps Hurt Stock

Dillard's Inc. DDS posted fourth-quarter fiscal 2023 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. This marked the company’s 12th straight quarter of a bottom-line beat. However, DDS sales and earnings declined year over year. The declines can be attributed to the challenging retail environment, which impacted sales and comps, as well as higher operating expenses.

Adjusted earnings of $13.69 per share surpassed the Zacks Consensus Estimate of $11.59. However, the bottom line declined 5.7% from the year-ago quarter's $14.51 per share.

Net sales of $2,124.4 million dipped 0.1% from the prior-year quarter but beat the Zacks Consensus Estimate of $2,080 million. Including service charges and other income, the company reported sales of $2,158.9 million, down 0.2% year over year.

Dillard’s shares declined 1.3% in the after-hours trading session on Feb 26 on the year-over-year declines in the top and bottom lines in fourth-quarter fiscal 2023. Shares of the Zacks Rank #2 (Buy) company have gained 26.3% in the past three months compared with the industry's growth of 25.2%.

 

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Q4 Details

Total retail sales (excluding CDI Contractors, LLC) fell 5% year over year to $2,057 million. Comparable store sales also declined 5% year over year. Retail sales were affected by the challenging sales environment in the quarter.

Our model had predicted a comps decline of 3.5% for the fiscal fourth quarter. The adverse performance compared with our estimate can be attributed to the tough retail environment in the quarter.

The company witnessed robust sales in cosmetics, and home and furniture categories in the quarter. On the flip side, juniors’ and children’s apparel, ladies’ accessories and lingerie, and ladies’ apparel were among the underperforming categories.

The consolidated gross margin contracted 110 basis points (bps) year over year to 36.6% in the fiscal fourth quarter. The retail gross margin of 37.7% reflected a year-over-year decline of 100 bps, driven by gross margin declines in the men’s apparel and accessories, juniors’ and children’s apparel, and shoes categories. This was offset by moderate gross margin growth in the home and furniture category, while the cosmetics, ladies’ accessories and lingerie, and ladies’ apparel categories were flat. We had estimated a gross margin decline of 270 bps in the fiscal fourth quarter to 36%.

Dillard's consolidated SG&A expenses (as a percentage of sales) expanded 80 bps to 22.4% from the prior-year quarter's 21.6%. In dollar terms, SG&A expenses (operating expenses) grew 4% to $476.7 million. The increase in operating expenses is mainly attributed to higher payroll and payroll-related expenses. The 53rd week in the fiscal fourth quarter led to additional operating expenses of $18.3 million.

Our model had predicted SG&A expense (as a percentage of sales) growth of 190 bps for the fiscal fourth quarter. In dollar terms, we expected SG&A expenses to increase 5.8% year over year to $485.1 million.

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

 

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

Dillard's, Inc. price-consensus-eps-surprise-chart | Dillard's, Inc. Quote

Financial Details

Dillard’s ended fiscal 2023 with cash and cash equivalents of $808.3 million, a long-term debt of $321.4 million, and a total shareholders' equity of $1,697.1 million. The company provided $883.6 million of net cash from operating activities as of Feb 3, 2024. Ending inventory declined 2% year over year as of Feb 3, 2024.

Capital expenditure for fiscal 2024 is likely to be $125 million, indicating a decline from the $133 million spent in fiscal 2023.

In the fiscal fourth quarter, the company repurchased 52,000 Class A shares for $16.2 million, under its existing repurchase program. This resulted in a total repurchase of 917,700 shares for $281.4 million in fiscal 2023. As of Feb 3, 2024, DDS had an authorization worth $394 million remaining under its share repurchase program announced in May 2023.

Store Update

As of Feb 3, 2024, DDS operated 273 full-line Dillard’s stores, including 28 clearance stores, across 29 states, as well as an online store at dillards.com.

In March 2024, the company plans to open a store at the Empire Mall location in Sioux Falls, South Dakota. This will mark the company’s 30th store in the state.

Outlook

For fiscal 2024, Dillard’s expects depreciation and amortization of $185 million, whereas it reported $180 million in fiscal 2023. The company expects a net interest and debt income of $8 million, whereas it recorded an income of $5 million in fiscal 2023. DDS anticipates rentals of $22 million for fiscal 2024, in line with fiscal 2023.

Other Stocks to Consider

Here are some other top-ranked stocks that you may want to consider, namely, American Eagle Outfitters AEO, Abercrombie & Fitch ANF and Deckers Outdoor DECK.

American Eagle, a specialty retailer of casual apparel, accessories and footwear, currently flaunts a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter surprise of 23.02%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for American Eagle’s current fiscal year’s revenues and earnings suggests growth of 5% and 45.4%, respectively, from the year-ago quarter’s reported figures.

Abercrombie, a specialty retailer of premium, high-quality casual apparel for men, women, and kids, currently flaunts a Zacks Rank #1. ANF has a trailing four-quarter earnings surprise of 713%, on average.

The Zacks Consensus Estimate for Abercrombie’s current financial year’s sales suggests growth of 14.8% from the year-ago quarter’s reported figure. The consensus mark for earnings of $6.12 per share for fiscal 2023 indicates substantial growth from the 25 cents reported in the year-ago quarter.

Deckers Outdoor is a leading designer, producer and brand manager of innovative, niche footwear and accessories developed for outdoor sports and other lifestyle-related activities. The company sports a Zacks Rank #1 at present.

The Zacks Consensus Estimate for Deckers Outdoor’s current fiscal year’s sales and EPS suggests growth of 15.7% and 38.6%, respectively, from the year-ago quarter’s reported figures. DECK has a trailing four-quarter earnings surprise of 32.1%, on average.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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