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Why Dillard's (DDS) is a Solid Investment Pick at the Moment

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Dillard’s Inc. (DDS - Free Report) has been witnessing momentum lately, driven by better-than-expected earnings in third-quarter fiscal 2019. Notably, since reporting earnings results on Nov 14, the department store chain’s shares have gained 5.4% against the industry’s decline of 8.6%.


Apart from strong results, the company’s trendy product offerings as well as store growth and omni-channel efforts helped it remain resilient in a tough industry. Consequently, shares of this Zacks Rank #2 (Buy) company have gained 18.6% year to date, while the industry declined 33.8%.

Strong Q3 Performance

The company reported adjusted earnings of 23 cents in third-quarter fiscal 2019, significantly beating the Zacks Consensus Estimate of a loss of 29 cents. The better-than-expected earnings results were attributed to strong sequential gains in comparable sales (comps) as well as retail gross margin. Further, reduced inventory levels boosted performance.

Dillard’s reported flat comps compared with a 3% increase in the year-ago quarter. However, comps for the quarter under review reflected a sequential improvement from a 2% decline reported in second-quarter fiscal 2019.

Further, the company’s consolidated gross margin expanded 53 basis points (bps) in the fiscal third quarter. Gross margin from retail operations rose 13 bps mainly due to lower inventory levels. Notably, gross margin from retail stores reflected significant sequential gain from a decline of 319 bps reported in second-quarter fiscal 2019. Merchandise inventories declined nearly 4% as of Nov 2, 2019, compared with flat inventories at the end of second-quarter fiscal 2019.

Other Factors Aiding Stock Growth

Although the department store industry is facing increased competition from specialty retailers and growing e-commerce, Dillard’s is shielded by its efforts to capture growth opportunities in brick-and-mortar stores and e-commerce business. These will likely help it retain existing customers and attract new ones.

On the store front, the company is gaining from initiatives to enhance brand relations, focus on in-trend categories, store remodels and increased rewards to store personnel. Moreover, its e-commerce business is catching pace with strategies like merchandise assortment enhancement and effective inventory management.

We expect the company to gain from its focus on increasing productivity at existing stores, developing a leading omni-channel platform and enhancing domestic operations in the years ahead.

Furthermore, it is likely to make the most of the holiday season this year on the introduction of Carvela’s mainline footwear in its stores. The company recently collaborated with the U.K.’s iconic footwear brand — Kurt Geiger — and announced the launch of the latter’s Carvela collection across its 75 stores in the United States and online.

The launch was backed by a special campaign by Dillard’s, showcasing Carvela’s collection — including trendy heels, sneakers and sandals — at prices between $85 and $150. Designed in London, Carvela offers top-quality products made of finest leathers, making it an ideal addition to Dillard’s footwear business.

Other Favorable Retails Picks

Boot Barn Holdings, Inc (BOOT - Free Report) has an impressive long-term earnings growth rate of 17%. It presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Zumiez Inc (ZUMZ - Free Report) has a long-term earnings growth rate of 12%. It currently flaunts a Zacks Rank of 1.

Target Corp. (TGT - Free Report) has a long-term earnings growth rate of 7.6%. It sports a Zacks Rank #1 at present.

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