Back to top

Image: Bigstock

Why Dillard's (DDS) is a Great Investment Option at the Moment

Read MoreHide Full Article

Dillard’s Inc. (DDS - Free Report) is one resilient stock, which catches the eye in an otherwise tough market. Shares of the fashion apparel and home furnishings retailer are well-placed to gain amid the recovering consumer demand and store traffic trends. The company is reaping benefits from the stringent inventory management and expense-control measures undertaken to wedge the ill effects of the pandemic-led store closures.

Dillard’s sales and earnings per share surpassed the Zacks Consensus Estimate and improved on a year-over-year basis in first-quarter fiscal 2021. This marked a better-than-expected bottom-line performance for the fourth consecutive quarter.

Backed by the above-mentioned factors, shares of this Zacks Rank #1 (Strong Buy) company have surged 77.9% in the past three months against the industry’s decline of 0.5%. Dillard’s also comfortably outpaced the Zacks Retail-Wholesale sector’s decline of 0.02% and the S&P 500 index’s growth of 5.8% during the same period.

 

Zacks Investment ResearchImage Source: Zacks Investment Research

 

Factors Driving Growth

The optimism on the Dillard’s stock not only comes from its strong performance but also from stringent strategies, which have helped it gain in a tough environment. Citing the pandemic-led business disruptions, the company undertook several steps to reduce costs starting first-quarter fiscal 2020, which translated into bottom-line growth in the first quarter of fiscal 2021.

Some of these were the extension of vendor payment terms, the reduction of discretionary and capital expenditures, and payroll deduction. Backed by the efforts, the company’s retail SG&A expenses (operating expense) declined 17% year over year to $335.1 million in the fiscal first quarter. Dillard's consolidated SG&A expenses (as a percentage of sales) contracted significantly to 25.3% from the prior-year quarter’s 36.9%, owing to lower payroll and a decline in payroll expenses.

The company has also been keen on inventory management since the start of the pandemic through measures like cancellation, suspension and delaying of shipments as well as merchandise purchase reduction. The aggressive measures to lower excess inventory, owing to the pandemic-led decline in demand, have proved beneficial for the company’s margins.

As of the end of first-quarter fiscal 2021, inventory declined about 17% year over year to $1,306.5 million. Prior to this, inventory levels were down 26%, 22%, 20% and 14% in the fourth, third, second and first quarters of fiscal 2020, respectively.

Inventory reductions also resulted in lower markdowns in the fiscal first quarter, which boosted the gross margin. Notably, the retail gross margin improved significantly to 42.7% from 12.8% in the year-ago quarter. On a consolidated basis, the gross margin of 41.7% reflects a sharp improvement from 12.5% in the prior-year quarter.

The positive along with the acceleration of the vaccination program, an increase in stimulus money and favorable weather boosted the company’s top and bottom lines in the fiscal first quarter. Net sales surged 69% year over year, with total retail sales rising 73% year over year. Solid performance in juniors and children's apparel, men's apparel and accessories, and ladies' accessories and lingerie contributed to sales growth.

Conclusion

We believe that the company’s cost- and inventory-management initiatives as well as strong liquidity status position it well for continued growth throughout 2021. This is further supported by a VGM Score of A.

Other Stocks to Consider

Macy’s, Inc. (M - Free Report) has an expected long-term earnings growth rate of 12%. It currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Abercrombie & Fitch Company (ANF - Free Report) presently flaunts a Zacks Rank #1. It has an expected long-term earnings growth rate of 18%.

Hibbett, Inc. (HIBB - Free Report) , also a Zacks Rank #1 stock, has an expected long-term earnings growth rate of 17.7%.

Breakout Biotech Stocks with Triple-Digit Profit Potential

The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.

See these 7 breakthrough stocks now>>


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Macys, Inc. (M) - free report >>

Dillards, Inc. (DDS) - free report >>

Abercrombie & Fitch Company (ANF) - free report >>

Hibbett, Inc. (HIBB) - free report >>