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Dillard's (DDS) Earnings and Sales Miss Estimates in Q2

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Dillard's Inc. (DDS - Free Report) reported dismal second-quarter fiscal 2019 results, wherein earnings and sales missed estimates. Results were impacted by higher markdowns and soft margins.

Shares of this Zacks Rank #3 (Hold) company declined 9.9%, following the dismal results. Though its shares have moved down 24.1% in the past year, it has fared better than the industry’s slump of 46.2%.

 



Q2 Numbers

Dillard's reported adjusted loss per share of $1.74, much wider than the Zacks Consensus Estimate of loss of 66 cents. Further, the bottom line compared unfavorably with the year-ago quarter’s loss of 10 cents per share.

Dillard's, Inc. Price, Consensus and EPS Surprise

 

Dillard's, Inc. Price, Consensus and EPS Surprise

Dillard's, Inc. price-consensus-eps-surprise-chart | Dillard's, Inc. Quote

Net sales were $1,458.8 million, reflecting a decline of 2.8% from the year-ago quarter while missing the Zacks Consensus Estimate of $1,470 million. Excluding services and other income, sales fell 2.8% to $1,426.8 million. Merchandise sales dipped 2.2% to $1,378 million. Sales in comparable stores for the 13 weeks (ended Aug 3, 2019) also declined 2%.

During the fiscal second quarter, the company witnessed robust performance in juniors' and children's apparel along with momentum in home and furniture, and men's apparel and accessories. However, sales remained soft for the ladies' apparel as well as ladies' accessories and lingerie categories. Notably, the eastern region performed exceedingly well, followed by western and central regions.

Consolidated gross margin declined 304 basis points (bps). Gross margin from retail operations contracted 319 bps mainly due to higher markdowns.

Dillard's SG&A expenses (as a percentage of sales) rose 90 bps from the prior-year quarter to 28.7%. In dollar terms, SG&A expenses (operating expenses) dipped 0.2% to $409.1 million.

Financial Details

The company ended the fiscal second quarter with cash and cash equivalents of $118.1 million, long-term debt and finance leases of $367 million, and total shareholders’ equity of $1,645.9 million. As of Aug 3, 2019, merchandise inventories were nearly flat at $1,603 million.

In the first half of fiscal 2019, the company used cash of $18.6 million in operating activities. However, it remained committed to rewarding shareholders with dividends and buybacks.

During the fiscal second quarter, the company bought back roughly 0.8 million shares for $48.9 million under its $500-million repurchase program announced in March 2018. As of Aug 3, 2019, it had share buyback authorization worth $340.6 million remaining under its program.

Store Update

As of Aug 3, 2019, Dillard’s had about 260 namesake outlets and 29 clearance centers, operating in 29 states alongside an online store at www.dillards.com. The company’s total square footage as of Aug 3 was 48.8 million.

Further, it planned to close three stores in the coming months. These closures include locations in Oakwood Mall in Enid, OK; Cary Village in Cary, NC; and Mall of the Bluffs in Council Bluffs, IA.

Fiscal 2019 View

Dillard’s provided its guidance for fiscal 2019. The company now expects rentals of approximately $28 million compared with $29 million in fiscal 2018. Net interest and debt expenses are anticipated to be $46 million, down from $53 million in fiscal 2018. Furthermore, the company now projects capital expenditure of about $125 million for fiscal 2019 compared with $140 million stated earlier, whereas it spent $137 million in fiscal 2018.

For fiscal 2019, depreciation and amortization expenses are projected to be $224 million, flat with the fiscal 2018 level.

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