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Dillard’s Reports Good Sales Gains But Flat Earnings

NEW YORK -- Despite strong sales gains, first-quarter earnings at Dillard Department Stores Inc. were flat and well below what Wall Street analysts expected.<BR><BR>The Little Rock, Ark.-based chain reported earnings of $48.3 million, or 43 cents a...

NEW YORK — Despite strong sales gains, first-quarter earnings at Dillard Department Stores Inc. were flat and well below what Wall Street analysts expected.

The Little Rock, Ark.-based chain reported earnings of $48.3 million, or 43 cents a share, against $48.2 million, or 43 cents, a year earlier.

In the quarter ended April 30, sales rose 10.4 percent to $1.3 billion from $1.2 billion. Same-store sales rose 7 percent.

The results were disappointing in light of the strong results reported by the competition. Federated Department Stores Inc. said Wednesday that its earnings for the first quarter jumped 48.5 percent, and May Department Stores Co. on Monday said its earnings leaped 16.7 percent.

Dillard’s, however, reportedly may be experiencing some consumer reaction against its everyday-low-pricing strategy and was forced to reverse its game plan with unwanted price reductions.

Pressure on margins was stronger than expected, according to Jeffrey Edelman, analyst at C.J. Lawrence.

“Dillard’s had heavy markdowns to clean inventory, but the good news is they enter the new quarter very clean,” he said, noting that Dillard’s bottom line tends to be higher when inventory is down.

“Dillard’s came in much lower than we expected,” said Steven Kernkraut of Bear Stearns & Co., noting he had projected earnings per share of 48 to 49 cents. “The sales growth was there, but they couldn’t leverage the gains and bring it to the bottom line.” He added that the company must have been overambitious in its plans and ended up with excess spring merchandise that had to be marked down.

Kernkraut said he had been projecting earnings per share of $2.50 for the year, against $2.14 in 1993, but said this estimate may be lowered.

Dillard’s reported an increase in cost of sales to 66.4 percent against 64.8 percent a year ago. Net income as a percentage of sales slipped to 3.8 percent from 4.2 percent.

Janet Mangano, analyst at Burnham Securities, said Dillard’s earnings per share came in below her estimate and the Wall Street consensus of 46 cents.

The retailer opened two stores in the quarter, bringing the total to 229 units in 21 states.

Many industry observers expect Dillard’s to pick up its expansion efforts.

“I believe they are going to make an acquisition,” said retail analyst Edelman. “They have the balance sheet for it, and the acquisition will be a large one.”

Reports about Dillard’s being interested in Macy’s — currently in Chapter 11 and the object of a merger attempt by Federated — have circulated for years, and chairman William Dillard stirred up speculation again in an interview printed in Wednesday’s Wall Street Journal.

In the story, he said his company is interested in all or part of Macy’s. But Dillard’s has not made a formal play for Macy’s, nor is it expected to. In the event of a Macy’s breakup, however, it is widely believed that Dillard’s would eagerly seek several Macy sites, particularly in Atlanta and other Southern markets where it does not operate stores.

Macy’s generally operates in larger markets with higher real estate costs, while Dillard’s is primarily in secondary markets. Analysts said they believe Dillard’s would have a tough time operating in many of Macy’s high-cost Northeastern locations.