Dillard's Posts Flat January Comps

Fashion apparel, cosmetics and home furnishings retailer Dillard’s Inc. (DDS - Analyst Report) reported total sales decline of 1% while comparable store sales remained flat year over year for the 27-day period ending on January 28, 2012.  Total sales for the period plummeted to $363.5 million versus $366.4 million recorded in the comparable period last year.

Geographically, sales for the 27-day period dropped due to marginally below trend in the western region as well as significantly below trend in Central region. However, the company’s Eastern region performance was flat year over year.

Product-wise, sales trends for shoes and home and furniture categories lived up to the company’s expectations in the 27-day period. However, sales for men’s apparel and accessories significantly missed expectations.

Fourth-Quarter 2011 Sales Performance

Dillard’s total sales for the 13 week-period ended January 28, 2012 inched up 2% to $1,951.5 million compared with $1,914.6 million in the year-ago period. Comparable sales for the same period registered a year-over-year growth of 3%.

Fiscal 2011 Sales Performance

For the 52 weeks ended January 28, 2012, the company’s sales totaled $6,199.0 million, registering an increase of 3% from total sales of $6,020.3 million reported in the same period last year. Comparable store sales increased 4% for the 52-week period ended January 28, 2012.

This month’s performance has broken Dillard’s run of positive comps and sales growth since April 2011. Moreover, the company has also registered positive comparable and total sales growth in every quarter of fiscal 2011.

On the back of 2% growth in comparable sales for the first quarter of fiscal 2011, Dillard’s earnings doubled to $1.31 per share. Similarly, the company’s earnings reached 32 cents per share for second-quarter 2011, on the heels of 6% rise in comparable sales. The trend continued in the third quarter as well as earnings more than doubled to 50 cents per share primarily driven by a rise of 5% in comparable sales.

Peer Performance

Dillard’s operates its retail merchandise business under highly competitive conditions. Despite being a large regional department store, the company has many competitors at the national level, who compete with the individual stores, including specialty, off-price, discount and Internet and mail-order retailers.

Among the company’s peers, Kohl’s Corporation (KSS - Analyst Report) reported a marginal comparable sales growth of 0.6%, while net sales inched up 2.4% to $844 million during the five-week period ended January 28, 2012. Dillard’s another competitor Ross Stores Inc.’s (ROST - Snapshot Report) comparable sales grew 5% and total sales surged 10% to $483 million compared with $441 million in prior-year period.

Our Take

We believe that the company’s sales will improve in near term given its increased focus on online business. Dillard’s has recently made a huge investment of $4 million in Acumen Brands, a Fayetteville, Arkansas-based ecommerce company.

As per the deal, Acumen Brands will provide technological marketing services which will boost Dillard’s brand online. Further, the company has also announced to open a new Internet Fulfillment Center in Maumelle, Arkansas, in spring 2012.

We believe that the company benefits from its improvements in inventory management, focusing on more conservative purchasing and efforts to better match the timing of receipts with demand, ultimately resulting in reduced markdowns.

Dillard’s has recently taken a revolutionary step to boost its liquidity position by forming a real estate investment trust company, which will open the avenues for debt and equity markets. Moreover, the company has also formed a wholly-owned captive insurance company, which we believe will enable it to manage its risks more efficiently while providing access to more reinsurance markets.

Dillard's shares maintain a Zacks #3 Rank, which translates into a short-term Hold rating. Our long-term recommendation on the stock remains Outperform.

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