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On Oct 21, 2013, we reiterated our long-term recommendation on Dillard’s Inc. (DDS - Analyst Report) at Outperform, based on its strong bottom-line results for the second consecutive quarter.

Why Outperform?

With a positive earnings surprise of 21.5% in the second quarter, the company has surpassed the Zacks Consensus Estimate for the second consecutive quarter as well as thrice in the trailing 4 quarters. The average earnings surprise for the past 4 quarters was approximately 16.0%.

The company’s second-quarter fiscal 2013 earnings benefitted from the successful execution of its long-term growth strategies and the strength of its distinguished and varied assortments.

We expect the company to maintain this trend of posting positive earnings surprises in the years ahead, based on its focus on boosting productivity at existing stores, developing a leading omni-channel platform and enhancing its presence domestically.

Looking at the products offering, we note the company’s strategy of offering more fashion-forward and trendy products has effectively attracted more customers to its stores. This is evident from positive comparable store sales performance in the trailing 11 quarters. Further, improved comparable store sales performance and enhanced e-Commerce capabilities have helped Dillard’s report sales growth over the last several quarters.

Moreover, its wholly owned Captive Insurance Company and REIT facilitate efficient risk management and boost its liquidity position. On the other hand, we appreciate the company’s prudent inventory management that focuses more on conservative purchasing and efforts to better match the timing of receipts with demand, which ultimately result in reduced markdowns.

Other Stocks Worth Considering

Other stocks that are worth considering in the retail industry include Best Buy Co. Inc. (BBY - Analyst Report), Fortune Brands Home & Security Inc. (FBHS - Snapshot Report) and Rite Aid Corp. (RAD - Analyst Report). All these stocks carry a Zacks Rank #1 (Strong Buy).

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