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Dillard's Down 17% in 3 Months: Can Strategies Revive Stock?

Zacks Equity Research
Updated

Shares of Dillard's, Inc. DDS have lost 16.6% in the past three months due to the company’s soft cash flows, which has resulted in lesser share buybacks. Also, the company remains prone to challenging trends in the department store space due to the evolving retail trends, including e-commerce growth, which might dent its overall profitability. Meanwhile, the industry has declined 4.8% in the same time frame.

Further, the stock’s dismal run on bourses is well evident from a Momentum Score of F, which indicates lower potential. However, the company has been taking various strategic initiatives to reverse the stock’s dismal performance.

Let’s delve deep.

What’s Hurting the Stock?

Dillard’s lower share buybacks has been hurting its profitability. Apparently, the company reported loss per share of 10 cents in second-quarter fiscal 2018, narrower than loss of 58 cents in the prior-year quarter and the Zacks Consensus Estimate of loss of 41 cents.

The company used net cash of $15.4 million in operations and reported soft free cash flows in the fiscal second quarter. Consequently, it bought back only 39,400 shares for $3.1 million in the quarter, under its $500-million repurchased program announced in March 2018.

Year to date, Dillard’s has bought back 518,000 shares for $37.9 million under its February 2016 and March 2018 programs. As of Aug 4, 2018, the company had $496.9 million worth of share buyback authorization remaining under its March 2018 program.

Furthermore, the challenging trends in the retail industry have been hurting the company’s performance. The retail merchandise business is prone to changes in consumer preferences and spending patterns, demographic trends, consumer credit availability and location of competing stores. In fact, this leading departmental store chain is facing troubles by the shift of customers from offline to online.

Dillard’s also faces intense competition from large department store retailers like Macy's, Inc. M, J. C. Penney Company, Inc. JCP and Kohl's Corporation KSS.

Strategic Initiatives

Dillard’s consistent efforts to capitalize on growth opportunities in its brick-and-mortar stores and e-commerce business are encouraging. Moving ahead, its focus on increasing productivity, enhancing domestic operations and developing omni-channel platform is expected to strengthen the customer base.

On the store front, the company will gain by enhancing brand relations, focusing on in-trend categories, store remodels and rewarding store personnel. With regard to e-commerce, it has been undertaking strategies like enhancing merchandise assortments and effective inventory management to boost growth. Notably, the company’s top and bottom line has been benefiting from its focus on developing a solid omni-channel platform and enhancing domestic operations.

In second-quarter fiscal 2018, Dillard’s marked its fourth consecutive bottom line beat, with fifth straight positive sales surprise. Top line gained from comparable store sales (comps) growth as well as strength across its men's apparel and accessories, and juniors' and children's apparel categories. Additionally, the company’s retail gross margin improved owing to lower markdowns. As a result, management reiterated its guidance for fiscal 2018.

Wrapping Up

Though Dillard’s cash flows remain soft, we expect its robust strategies to revive performance in the future. Also, this Zacks Rank #3 (Hold) stock has an impressive long-term earnings growth rate of 9.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Macy's, Inc. (M) : Free Stock Analysis Report
 
J. C. Penney Company, Inc. (JCP) : Free Stock Analysis Report
 
Kohl's Corporation (KSS) : Free Stock Analysis Report
 
Dillard's, Inc. (DDS) : Free Stock Analysis Report
 
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