Dillard's

Dillard’s Inc. (DDS - Analyst Report) gained significant momentum following outstanding fiscal second quarter 2012 results on August 8, which included an earnings surprise of 28.6%. Shares of this fashion, cosmetics and home furnishings retailer hit its 52-week high of $76.33 on August 9, and earnings estimates have moved higher in the past week.

Looking at the longer term, Dillard’s has impressed investors with continuous earnings surprises over the last eight quarters. Also, the stock has gained a solid 69% since February this year. The recent results, its history of repeated earnings surprises and its solid stock growth in the last six months pushed this stock to a Zacks # 1 Rank (Strong Buy) on August 10.

Dillard's 2Q Profit Soars

Dillard's Inc. posted solid fiscal second-quarter 2012 earnings on the back of a robust sales performance, increased gross margin and prudent cost control measures. Earnings per share of 63 cents significantly outpaced the Zacks Consensus Estimate of 49 cents and more than doubled the prior-year quarter earnings of 30 cents.

Dillard's top line (including CDI Contractors LLC or CDI) jumped 3.2% to $1,487.9 million from $1,441.7 million in the year-ago quarter. Merchandise sales, excluding CDI, came in at $1,456 million, compared with $1,426 million. The company’s total revenue (including other income) of $1,525.2 million surpassed the Zacks Consensus Estimate of $1,466 million. Comparable store sales (comps) for the quarter were up 3%.

During the quarter, ladies accessories and lingerie were the outperforming categories, followed by shoes and cosmetics. Categories that witnessed the lowest sales included home and furniture and juniors’ and children’s apparel. The best performing region was Central, followed by East and West.

Gross margin from retail operations (excluding CDI) expanded 70 basis points to 34.3%, while consolidated gross margin (including CDI) advanced 40 basis points to 33.6%.

Operating expenses increased marginally (0.7%) to $398.8 million from $396.0 million in the prior-year quarter. However, operating expenses as a percentage of sales contracted 70 basis points to 26.8% in the quarter.

Earnings Estimates Advance Recently

The company’s estimates for both fiscal 2012 and 2013 each witnessed a surge of 25 cents in the last 7 days. The Zacks Consensus Estimate for fiscal 2012 added about 4.3% to $6.00 per share in the past week, reflecting year-over-year growth of 42.5%. The Zacks Consensus Estimate for fiscal 2013 is up 4.0% to $6.50 per share over the same period, representing an 8.3% year-over-year jump.

Valuation Reasonable

Dillard’s currently trades at a forward P/E of 12.4x, on par with the peer group average. The trailing 12-month ROE is 13.1%, significantly higher than the peer group average of 9.5%, indicating that the company reinvests its earnings more efficiently than its peer group. Moreover, the price-to-sales ratio reflects a discount of 1.8% to the peer group, with shares trading at a multiple of 0.56.

Charts Reach for the Sky

Shares of Dillard’s have risen gradually in the last six months, gaining approximately 69% since February 1. Hitting a new 52-week high on August 9, shares now hover close to this mark.

Additionally, shares of Dillard’s have consistently traded above the 200-day moving average since February 16 this year. The widening gap between the stock price line and the 200-day moving average show Dillard’s enormous potential. Currently, the 50-day moving average of $65.18 also stands above the company’s last traded price.

Moreover, this large department store chain has outperformed the S&P 500 since February 3. The year-to-date return for the stock is roughly 68.3% compared with the S&P 500’s return of 10.0%. Volume is fairly strong, averaging roughly 872K daily.

Headquartered in Little Rock, Arkansas, Dillard's is a large department store chain, featuring fashion apparel and home furnishings. The company’s primary product categories are: women’s and junior’s apparel; shoes; accessories and lingerie; men’s clothing and accessories; cosmetics; home; and children’s clothing. Its merchandise mix consists of both branded and private-label items. Dillard’s currently operates 304 stores including 16 clearance centers and one Internet store across 29 states, all under the Dillard’s brand name. The company was founded in 1938.