Shares of Dillard’s Inc.’s slid 8.2 percent on Friday, the most of any of the 100 international stocks on the WWD Global Stock Tracker, after the department store missed earnings estimates and reported declines in second-quarter sales, profits and margins.
Dillard’s cited weakness in home and furniture as it disclosed a lower-than-expected 1 percent increase in same-store sales. Juniors and children’s apparel performed best, followed by men’s apparel and accessories.
In the 13 weeks ended Aug. 2, net income contracted 5.5 percent to $34.5 million, or 80 cents a diluted share, from $36.5 million, or 79 cents, in the year-ago quarter. The earnings per share figure was 6 cents below the 86-cent profit anticipated, on average, by analysts.
The reported EPS figure and consensus estimate were identical to those of Macy’s Inc., which reported higher quarterly profits last Wednesday despite its earnings “miss.”
Net sales, including those of the firm’s construction business, declined 3.7 percent to $1.47 billion from $1.48 billion in the year-ago quarter, while merchandise sales ticked up 0.1 percent to $1.46 billion.
“Although our 1 percent comparable-store sales increase led to a profitable quarter, we are somewhat disappointed in the bottom-line performance,” said William Dillard 2nd, chief executive officer. “We are pleased with our inventory management during the quarter and with our ending inventory position.”
Investors’ eyes were drawn to the company’s 33-basis-point decline in retail gross margin, the specific percentage of which wasn’t provided, and 20-basis-point decline in consolidated gross margin. Increased markdowns were the principal cause of the decline in margins, the Little Rock, Ark.-based firm said. Margin pressures have been a common denominator among the larger retailers, which have so far reported second-quarter results, and contributed to the 8.2 percent decline in Dillard’s stock, to $106.11, on Friday.
Inventories at the end of the quarter were $1.43 billion, 2.1 percent below the year-ago level.
In the first half, the firm, which operates 278 department stores and 18 clearance centers in 29 states, saw net income decline 4.9 percent to $146.1 million, or $3.36 a diluted share, as revenues declined 0.2 percent to $3.1 billion.
J.P. Morgan analyst Matthew Boss noted that Dillard’s has managed its inventory well and benefitted from the addition of desirable brands such as Under Armour, Vera Bradley and Michael Kors, helping to expand its average ticket, and in turn same-store sales, over the past two years.
However, he identified “negative traffic” as “an increased concern as the branded cycle moves into the later innings.” He also noted that gross margin could be at further risk and that, with Dillard’s so far not invested to the same extent as its department store peers in omnichannel retailing, future spending could elevate selling, general and administrative costs and constrain operating profits.
Citi analyst Oliver Chen maintained his “neutral” rating on the stock and stuck to his price target of $110.
“We’re pleased to see DDS has a clean inventory position going into back-to-school and holiday, which should insulate [it] from some of the promotional environment,” he wrote in a note to clients, adding that the softness in Dillard’s home business might be attributable to improvements in J.C. Penney Co. Inc.’s home business.
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