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Dillard's Profits Surge, Misses Est

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Dillard's Inc. (DDS - Free Report) , leading fashion apparel, cosmetics and home furnishings retailer, posted record fourth-quarter and fiscal 2012 earnings on the back of a robust sales performance combined with gross margin improvement as well as prudent cost control measures.

Fourth quarter earnings per share of $2.87 grew 29.9% from $2.21 reported in the prior-year quarter but missed the Zacks Consensus Estimate of $2.90. For fiscal 2012, the company reported earnings of $6.32 per share, up 50.1% from $4.21 per share in fiscal 2011 but fell short of the Zacks Consensus Estimate of $6.33. Earnings for both 2012 periods include an additional week compared with the respective 2011 periods.

Sales & Comps

Dillard's net sales (including CDI Contractors LLC or CDI) jumped 6.9% to $2,106.3 million in the fourth quarter from $1,970.0 million in the year-ago quarter. Merchandise sales, excluding CDI, came in at $2,087 million compared with $1,946 million in the year-ago quarter. The company’s total revenue (including service charges and other income) of $2,154.1 million surpassed the Zacks Consensus Estimate of $2,140 million. Sales results for the fourth quarter are for a 14-weeks period compared with a 13-week period for the fourth quarter of 2011.

On a 13 weeks comparable basis, the company’s net sales improved 2% while comparable store sales (comps) for the quarter were up 3%.

During the quarter, ladies’ accessories and lingerie as well as men’s apparel and accessories were the outperforming categories. The category that witnessed the lowest sales was home and furniture. The best performing region was Central, followed by East and West.

For fiscal 2012, the company reported net sales (including CDI Contractors LLC or CDI) of $6,593.2 million, up 5.3% from $6,263.6 million in fiscal 2011. Merchandise sales rose 5% to $6,489 million compared with $6,194 million in the prior year. Total revenue (including service charges and other income) came in at $6,751.6 million, ahead of the Zacks Consensus Estimate of $6,735 million. Sales results for fiscal 2012 comprised 53 weeks compared to 52 weeks in fiscal 2011.

On a 52 weeks comparable basis, the company reported 3% increase in net sales while comparable store sales gained 4%.

Operating Results

In the fourth quarter, gross margin from retail operations (excluding CDI) expanded 40 basis points to 34.6%, while consolidated gross margin (including CDI) augmented 50 basis points to 34.4%.

Dillard's operating expenses for the quarter increased 7.7% to $474.9 million from $440.8 million in the prior-year quarter, mainly due to an additional week of operations in the quarter compared to the year-ago quarter. Operating expenses as a percentage of sales increased 10 basis points to 22.5% in the quarter.

Other Financial Details

Dillard’s ended fiscal 2012 with cash and cash equivalents of $124.1 million compared with $224.3 million last year. As of Feb 2, 2013, the company’s long-term debt and capital leases slipped marginally to $622.3 million from $623.9 million as of Jan 28, 2012. In fiscal 2012, the company generated net cash flow from operations of $522.7 million.

During the quarter, Dillard’s bought back nearly 294,000 shares for about $23.4 million, at an average price of $79.69. For the year, the company repurchased about 2.8 million shares for a total of $185.5 million, at an average purchase price of $65.82. As of Feb 2, 2013, the company had authorization worth nearly $92.0 million remaining under its share repurchase program.

Further, in Dec 2012, the company rewarded shareholders by paying a special dividend of $5.00 per share.

Store Update

In the fourth quarter, Dillard’s announced plans to close its 94,000 square feet store in the Cache Valley Mall in Logan, Utah. The closure is expected to be completed in the first quarter of 2013.

As of Feb 2, 2013, Dillard’s had about 284 namesake outlets as well as 18 clearance centers operating in 29 states and an Internet store at Total square footage as of year-end was 52.3 million.

Looking into 2012

Dillard’s expects fiscal 2013 depreciation and amortization expenses to be about $261 million, while rentals are projected at approximately $27 million. Moreover, the company expects to spend about $175 million toward capital expenditure in fiscal 2013, compared with $137 million spent in fiscal 2012.


Despite the earnings miss this quarter, our forward outlook for Dillard’s remains positive based on its strong performance over the last several quarters. Going forward, we expect it to continue posting earnings as well as revenue growth in the coming quarters. The company currently holds a Zacks Rank #3 (Hold).

Other retailers currently performing well include Express Inc. (EXPR), Big 5 Sporting Goods Corp. (BGFV - Free Report) , both of which carry a Zacks Rank #1 (Strong Buy), and Guess Inc. (GES - Free Report) , which has a Zacks Rank #2 (Buy).

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