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Dillard's (DDS) Q3 Earnings Miss on Soft Sales, Stock Down

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Dillard's Inc. (DDS - Free Report) reported dismal third-quarter fiscal 2016 earnings, which missed estimates and plunged year over year mainly due to soft sales performance. Results were primarily hurt by the persistent challenging trends in the apparel retail segment. In response, shares of this department store chain were down nearly 7% in yesterday’s after-hours session.

The company posted earnings of 67 cents per share, which missed the Zacks Consensus Estimate of 77 cents and plunged nearly 35% from $1.03 in the year-ago quarter. Earnings lagged primarily due to soft sales stemming from weak traffic trends that are attributed to consumer preference shifting more to online shopping as well as gross margin contraction.

Dillard's total revenue (including service charges and other income) of $1,406.5 million slipped 4.5% from the year-ago quarter but was ahead of the Zacks Consensus Estimate of $1,400.1 million.

Dillard's net sales (including CDI Contractors LLC or CDI) declined 4.8% year over year to $1,365.6 million in the reported quarter. Merchandise sales, excluding CDI, fell 4.3% to roughly $1,323 million. Merchandise comparable-store sales for the 13-week period ended Oct 29, 2016 were down 4% from the comparable period ended Oct 31, 2015.

During the reported quarter, sales at all of the company’s categories decreased. While home & furniture, juniors’ & children’s apparel, ladies’ apparel, and men’s clothing & accessories were among the relatively stronger categories, ladies’ accessories & lingerie, cosmetics and shoes were considerably weak. The best performing region was Western, trailed by the Central and Eastern region areas, respectively.

Consolidated gross margin contracted 73 basis points (bps), while gross margin from retail operations (excluding CDI) contracted 100 bps.

Dillard's selling, general and administrative (SG&A) expenses (as a percentage of sales) escalated 130 bps to 30.1%. In dollar terms, however, consolidated SG&A expenses inched down 0.5% to $410.5 million. Lower expenses were backed by a fall in several expense categories including advertising and services purchased, which were almost neutralized by higher payroll and insurance costs.

Financial Details

Dillard’s ended the quarter with cash and cash equivalents of $80.5 million, long-term debt and capital leases (excluding current portions) of $617.5 million and total shareholders’ equity of $1,736.2 million. Inventory dipped 2% year over year to $1,902 million.

During the first nine months of fiscal 2016, the company generated net cash flow from operations of $125.9 million. It bought back 0.9 million shares for $53.1 million in the fiscal third-quarter. With this, the company has authorization worth $334.4 million remaining as of Oct 29, 2016, under its $500 million share repurchase plan announced in Feb 2016.

Store Update

During the quarter, the company inaugurated a replacement store in Four Seasons Town Centre in Greensboro, NC.

As of Oct 29, 2016, Dillard’s had about 271 namesake outlets and 23 clearance centers operating in 29 states, as well as an online store at www.dillards.com. Dillard’s total square footage, as of the end of the fiscal second-quarter, was 49.6 million.

Fiscal 2016 Outlook

For fiscal 2016, Dillard’s expects rentals of approximately $27 million, while net interest and debt expenses are anticipated to be nearly $63 million, compared with $61 million in fiscal 2015.

The company projects capital expenditures of about $100 million for fiscal 2016 compared with $166 million in fiscal 2015. Depreciation and amortization expenses for fiscal 2016 are expected at $245 million compared with $250 million in the prior year.

DILLARDS INC-A Price, Consensus and EPS Surprise

DILLARDS INC-A Price, Consensus and EPS Surprise | DILLARDS INC-A Quote

Zacks Rank

Currently, Dillard’s carries a Zacks Rank #4 (Sell). Better-ranked stocks in the retail sector include Foot Locker Inc. (FL - Free Report) , The Gap Inc. (GPS - Free Report) and Zumiez Inc. (ZUMZ - Free Report) , each with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Foot Locker, with a long-term earnings growth rate of 9.9%, has surged nearly 10.1% year-to-date.

Gap has gained nearly 15.7% year-to-date. Moreover, it has a long-term earnings growth rate of 9.4%.

Zumiez has jumped 59.4% year-to-date. The stock has a long-term earnings growth rate of 15%.

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