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Do Dillard's Strategies (DDS) Poise It for Growth in 2018?

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Dillard's Inc.DDS is in a good form driven by strategic initiatives that aided the company's performance in the last reported quarter. The company continues to gain from its niche market position, offering a broad array of merchandise in its stores, featuring products from both national and exclusive brands.

Notably, this Zacks Rank #1 (Strong Buy) stock has outperformed the industry in the past year. Though Dillard's lost 2.8%, it fared better than the industry's 18.6% decline. Further, the company's long-term earnings growth rate of 2.6% and Value Score of B, highlight its inherent strength.

Growth Catalysts

Dillard's stringent focus on offering fashionable products to customers and adding value through exceptional customer care service is aiding stock performance. We believe that the company's strategy of offering fashion-forward and trendy products acts as a catalyst for attracting more customers.

Additionally, we are encouraged by its constant efforts to capitalize on growth opportunities in its brick-and-mortar stores and e-commerce business. With regard to stores, the company is benefiting from enhancing brand relations, focusing on in-trend categories, store remodels and rewarding store personnel. Further, its strategy of boosting growth across e-commerce business by improving merchandise assortments and effective inventory management bode well.

Moreover, Dillard's focus on increasing productivity and enhancing domestic operations are likely to strengthen customer base.

Focus on Improving Shareholder Value

Dillard's healthy cash flows provide the financial flexibility to take up shareholder-friendly moves as well as engage in store and online business expansion. During the nine months of the fiscal year, the company generated net cash flow from operations of $55.5 million and paid out $6.5 million in dividends. Further, it bought back 0.4 million shares for $23.7 million in the third quarter. As of Oct 28, 2017, Dillard's had an authorization worth $69.5 million remaining under its $500 million buyback program.

Strategic Initiatives Aid Quarterly Performance

Dillard's emerged strong in third-quarter fiscal 2017 as the bottom line surpassed the consensus estimate after a miss in the preceding quarter. Further, the top line outpaced estimates for second-straight quarter. Driven by growth initiatives, the company remains confident of future results. Hence, management retained fiscal 2017 guidance.

Markdowns & Challenging Industry Trends an Impediment

Dillard's performance is hurt by considerably high markdowns undertaken by the company to clear inventories. These have been weighing upon the gross margin for a while now. Additionally, Dillard's has been plagued by the challenging trends in the apparel retail segment arising out of the changing preference of customers from offline to online. While revenues surpassed estimates in the third quarter, it declined year over year with merchandise comparable store sales decreasing 0.8% due to the challenging retail backdrop. Meanwhile, persistence of these trends remains a threat.

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Other top-ranked stocks in the retail sector include Shoe Carnival Inc. SCVL , Foot Locker Inc. FL , both sporting a Zacks Rank #1, and American Eagle Outfitters Inc. AEO carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Shoe Carnival, with long-term earnings per share growth rate of 12%, has surged 19.6% in the last three months.

Foot Locker has advanced a substantial 36.3% in the last three months. The stock has a long-term growth rate of 5%.

American Eagle has a long-term EPS growth rate of 7.5%. Further, the stock has returned 35% in three months.

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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.


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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