Dillard's Hits a New 52-Week High

Shares of Dillard’s Inc. (DDS - Analyst Report) have set a new 52-week high of $86.80 on Friday, November 23, 2012, beating its previous 52-week high of $86.71 attained on November 8, 2012. The closing price of this fashion, cosmetics and home furnishings retailer as of November 23, 2012 was $86.44, which represented a marvelous year-to-date return of96.14%. Average volume of shares traded over the last 3 months stands at approximately 436.6 thousand.

Growth Driver

An impressive record of beating the quarterly earnings expectations, sturdy fiscal third quarter 2012 (ended October, 2012) earnings, healthy comparable-store sales, effective cost management, initiatives taken to boost profitability, solid cash flow from operations year-to-date are the major contributors of growth for the shares of this company.

With respect to earnings surprise, Dillard’s has topped the Zacks Consensus Estimates in nine back-to-back quarters, with a solid average of 54.9%.

Dillard's top line (including CDI Contractors LLC or CDI) in the fiscal third quarter 2012 increased 4.8% to $1.450 billion from $1.383 billion in the year-ago quarter. Merchandise sales, excluding CDI, came in at $1.425 billion compared with $1.366 billion in the year-ago quarter. The company’s total revenue (including other income) of $1.486 billion surpassed the Zacks Consensus Estimate of $1.442 billion. Comparable store sales (comps) for the quarter were up 5% year over year.

The robust performance was backed by healthy comparable-store sales growth of 5% and improved margins. Further, management’s cost cutting initiatives are facilitating the company to abridge costs and boost profitability.

The company benefits from improvements in inventory management, which is focused on conservative purchasing and efficiently matching the timing of receipts with demand, thereby resulting in reduced markdowns.

For the nine months ended October 27, 2012, the company generated net cash flow from operations of $219.9 million compared with $135.6 million in the comparable period last year.

Earnings Estimate Revision

The Zacks Consensus Estimate for fiscal 2012 increased 5.5% to $6.33 per share over the last 30 days. The current year-over-year growth estimate for 2012 is 50.4%.

For fiscal 2013, the Zacks Consensus Estimate was raised by 10.8% to $7.20 per share over the same time frame. The current year-over-year growth estimate for 2013 is 13.7%.

Valuation

Dillard's currently trades at a forward P/E of 13.70x, at a premium of 0.3% with the peer group average of 13.66x, while, its price-to-sales ratio of 0.63 is at a premium to the peer group average of 0.57. Moreover, on a price-to-book basis, shares trade at 1.97x versus the peer group average of 1.99x. With respect to return on equity (ROE), the stock looks attractive as well. It has a trailing 12-month ROE of 13.7%, which is above its peer group average of 9.7%. This implies that the company reinvests its earnings more efficiently than its peer group.

About the Company

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 include 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. As of October 27, the company operated 284 outlets and 18 clearance centers and one Internet store across 29 states. The company, founded in 1938, has a market cap of $4 billion.

Zacks Rank & Recommendation

Based on the above analysis, the stock currently carries a Zacks #1 Rank, which translates into a short-term Strong Buy rating for the upcoming 1-3 months. Moreover, we maintain our long-term ‘Outperform’ recommendation on Dillard’s, a peer of Macy’s Inc. (M - Analyst Report).