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Here's Why Dillard's (DDS) is a Lucrative Investment Now

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Dillard’s, Inc. (DDS - Free Report) appears to be a lucrative pick with solid growth prospects. The company has been in investors’ good books thanks to its sound fundamentals and impressive growth efforts. Continued consumer demand, and focus on inventory and expense management bode well. The company’s strategy to offer more fashion-forward and trendy products in order to attract customers has been a key driver.

The company boasts a robust earnings surprise trend, which continued in second-quarter fiscal 2022. Both the top and the bottom lines beat the Zacks Consensus Estimate and rose year over year in the fiscal second quarter. This marked the ninth straight quarter of earnings beat. The company gained from the continued momentum in consumer demand. The company witnessed robust sales in cosmetics, men’s apparel and accessories.

Backed by the robust earnings trend, the stock has outperformed the industry and the Retail - Wholesale sector in the past year. DDS has skyrocketed 55.7% against the industry’s decline of 10.2% and the sector’s decline of 21.7%. The stock also compares favorably with the S&P 500’s decline of 9.8% in the same period.

Zacks Investment Research
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The Zacks Consensus Estimate for DDS' third quarter and fiscal 2022 earnings has moved up 53.1% and 38.3%, respectively, in the past 30 days. The positive trend signifies bullish analyst sentiments and justifies the company’s Zacks Rank #1 (Strong Buy), indicating further outperformance in the near term.

Dillard's is likely to retain sales momentum on strong consumer demand, and robust sales across product categories and regions. Total revenues increased 1.2% from the prior-year quarter in the fiscal second quarter, while adjusted earnings rose 5.6% year over year. Total retail sales (excluding CDI Contractors, LLC) advanced 1% year over year while comparable store sales remained flat year over year.

The company’s initiatives to control inventory and expenses have been contributing to bottom-line gains for the past few quarters. Improved consumer demand and better inventory management have been leading to lower markdowns.

However, stiff competition and raw material price inflation are concerns. Also, the company has been witnessing elevated SG&A expenses for the past few quarters, which have been denting the bottom line to some extent. The persistence of the trend might partly affect the company’s profitability.

Nonetheless, investors are optimistic about the company’s share repurchases and dividend payments. In second-quarter fiscal 2022, DDS repurchased shares worth $225.8 million of Class A common stock under its existing repurchase program. As of Jul 30, 2022, Dillard's had $199.7 million authorization left under its February 2022 plan. Management also approved a share repurchase plan worth up to $500 million.

Dillard’s board recently approved its quarterly dividend of 20 cents per share on the Class A and Class B common stock, payable Oct 31, 2022, to shareholders with record as of Sep 30, 2022. Dillard's has an annualized dividend yield of 0.3%, a payout ratio of 1.7% and a free cash flow yield of 17.3%.

Other Stocks to Consider

We have highlighted three other top-ranked stocks in the Retail - Wholesale sector, namely Tecnoglass Inc. (TGLS - Free Report) , Designer Brands (DBI - Free Report) and Chico’s (CHS - Free Report) .

Tecnoglass, engaged in manufacturing and selling architectural glass and windows as well as aluminum products for the residential and commercial construction industries, currently sports a Zacks Rank #1. Shares of TGLS have gained 9.2% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Tecnoglass’ current-year sales and earnings suggests growth of 28.2% and 47.7%, respectively, from the year-ago period’s reported figures. TGLS has a trailing four-quarter earnings surprise of 24.4%, on average.

Designer Brands, which designs, manufactures, and retails footwear and accessories in North America, carries a Zacks Rank #2 (Buy) at present. DBI has a trailing four-quarter earnings surprise of 55.1%, on average. The stock has rallied 46% in the past year.

The Zacks Consensus Estimate for Designer Brands’ current-year sales and EPS suggests growth of 6.9% and 23.5%, respectively, from the year-ago period’s reported numbers.

Chico’s, an omnichannel specialty retailer, presently carries a Zacks Rank #2. CHS has a trailing four-quarter earnings surprise of 249%, on average. Shares of the company have rallied 25.2% in the past year.

The Zacks Consensus Estimate for Chico’s current-year sales and EPS suggests growth of 19.6% and 112.5%, respectively, from the year-ago reported numbers.

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