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Bull of the Day: Dillard's (DDS)

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Dillard's (DDS - Free Report) maintains its Zacks #1 Rank status after another strong earnings report where analysts boosted estimates for the current quarter and next year.

We'll go over the details of the report from November 10 right after we check in with the solid analysis from my colleague Brian Hayes last month. Here's what Bryan observed...

Dillard's is a long-term market winner within the Zacks Retail – Wholesale sector. The stock has held up extraordinarily well this year while the general market continues to hover in bear territory. Stocks that are able to show resilience during bear markets and weather the volatility tend to lead the upside once the market turns the corner.

DDS sports the highest-possible ‘A’ rating in our Zacks Value Style Score category, indicating an increased likelihood that the stock continues to propel higher. Dillard’s is trading at just a 7.53 forward P/E. The powerful combination of relative undervaluation and positive earnings estimate revisions should serve bullish DDS investors well into the future.

Recent Earnings and Future Estimates

DDS has been on a hot streak in terms of earnings surprises, beating estimates in each of the past four quarters. Back in August, the company reported Q2 EPS of $9.3/share, a +222.92% surprise over the $2.88 consensus estimate. Dillard’s has posted a trailing four-quarter average earnings surprise of +214.96%. When a company is consistently exceeding estimates by this wide of a margin, it typically creates a ‘tailwind’ and boosts price momentum.

Sales for the second quarter of $1.59 billion also topped estimates by 2.23%. DDS has surpassed revenue estimates in each of the last four quarters.

In the past 60 days, analysts have raised their full-year EPS projections by +38.34%. The Zacks Consensus EPS Estimate now stands at $36.23 per share. Revenues are anticipated to climb 4.79% to $6.8 billion.

(end of analysis from Bryan Hayes)

Q3 Delivers a 125% Earnings Beat

Well, they did it again. Dillard's bottom and top lines surpassed the Zacks Consensus Estimate and advanced year over year. This marked the seventh straight quarter of a top and bottom-line beat. Results gained from the continued momentum in consumer demand.

Since Dillard's is a core luxury department store in Texas and other energy-rich states, I'm betting that the bull market in oil has a bit to do with it. DDS currently operates 249 full-line Dillard's stores, and 28 clearance stores in 29 states.

Adjusted earnings of $10.96 per share significantly surpassed the Zacks Consensus Estimate of $4.87. The bottom line rose 11.7% from the year-ago quarter's $9.81 per share.

Total revenues of $1,544 million increased 4.3% from the prior-year quarter and beat the Zacks Consensus Estimate of $1,490 million. However, the figure came below our estimate of $2,100.7 million.

Total retail sales (excluding CDI Contractors, LLC) advanced 3% year over year to $1,499 million. Comparable store sales rose 3% year over year. The company witnessed robust sales in cosmetics, men’s apparel and accessories, home and furniture, and shoes. On the flip side, juniors’ and children’s apparel was the weakest performing category.

In response to this report, analysts of course had to raise FY'23 (ends in January) EPS by 14% due to the big $6 beat. But they also raised next year's EPS consensus by 10% to $25.10.

While we wait to see if analysts are more optimistic about next year's earnings outlook, the stock remains attractive on a price-to-sales basis trading at under 1 times revenue.

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