Dillard’s Reinvents, Profits Gain

Better sales and lower expenses helped lift first-quarter profits 57.2 percent.

Dillard’s Inc. appears to be winning the endorsement of both shoppers and investors as it tries to reposition itself as more of a luxe player.

This story first appeared in the May 16, 2011 issue of WWD.  Subscribe Today.

Better sales and lower expenses helped lift first-quarter profits 57.2 percent, the firm reported Friday, and Wall Street responded by pushing the company’s shares up $7.41, or 15.3 percent, to $56, after they hit a 52-week high of $56.76 in midday trading.

The 294-door Little Rock, Ark.-based chain is following in the first-quarter footsteps of Macy’s Inc., which pushed profits up fivefold with the help of some belt tightening.

But Macy’s is not the model that Dillard’s is aspiring to — think more of service-obsessed Nordstrom Inc., which also started the year off with better earnings as luxury spending rose.

“It’s a change of mind-set regarding who we should be,” said Julie Bull, director of investor relations. “There is an underserved consumer out there who wants exceptional service, and she’s seeking a retailer who will provide that on a long-term basis. It’s very much moving from what we think of as transactional retailing to relational retailing — as we raise the level of product in the store, we also are raising the level of the shopping experience and the level of attention to detail.”

Customers are now referred to as “clients” and sales associates are being encouraged to develop relationships with them. Kiehl’s cosmetics and Vince Camuto shoes have been added, and the Michael Kors assortment has been expanded.

So far, shoppers appear to approve of Dillard’s efforts. The firm’s net income rose to $76.7 million, or $1.31 a diluted share, from $48.8 million, or 68 cents, a year earlier. Revenues for the three months ended April 30 increased 1.1 percent to $1.5 billion from $1.48 billion on a 2 percent increase in comparable-store sales.

The retailer cut advertising, selling, administrative and general expenses by $4.3 million to $389.3 million and retail gross margins expanded by 130 basis points.

“I was very surprised by how strong the numbers were,” said Jason Asaeda, a retail equity analyst at Standard & Poor’s, who upgraded the stock to “buy” from “hold.”

The regional department stores have long been seen as withering under pressure of better-capitalized national competitors with superior marketing and financial might.

But Asaeda said he’s reevaluating that thinking.

“The companies that are left, they really have an opportunity to shine if they just think about what they represent,” he said.

Dillard’s has been trimming its store count, and Asaeda said that has made the chain and the overall customer experience a lot easier to manage.

“I’m not sure exactly what their final target is, but my impression is that they’re implementing changes slowly and they’re seeing how customers react,” he said.