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Dillard's in the Red: Can Strategies Reinforce Growth?

Dillard's Inc. DDS has been losing ground lately primarily due to persistently challenging trends in the apparel retail segment on account of the changing preferences of customers from offline to online. Additionally, raw material price volatility, macroeconomic challenges and competition remain major concerns for the company. These factors have been weighing on its financial performance for a while now.

Evidently, Dillard’s lagged earnings estimates for the second straight quarter in fourth-quarter fiscal 2016. Looking further behind, we note that the company has missed earnings estimates in five of the trailing six quarters, delivering an average negative surprise of 11.6% in the trailing four quarters. Further, it posted lower-than-expected sales in the last reported quarter, after posting four straight beats. Moreover, both the top line and bottom line plunged year over year.

Plagued by the challenges in the retail space and the disappointing financial performance, shares of this Zacks Rank #4 (Sell) company has underperformed the Zacks categorized Retail–Wholesale sector. Year to date, the stock declined nearly 19.4%, while the broader sector gained 7.1%.



Furthermore, a look at the company’s estimates reveals a considerable downside in the last seven days. The Zacks Consensus Estimate has dipped 3 cents for both first-quarter fiscal 2017 and fiscal 2017 to $1.98 and $4.44, respectively.

Dillard's, Inc. Price, Consensus and EPS Surprise

 

Dillard's, Inc. Price, Consensus and EPS Surprise | Dillard's, Inc. Quote

What Lies Ahead?

Going forward, we believe the challenging trends in the retail sector will persist as brick-and-mortar stores continue to lose sheen to the rising online businesses. Further, the fiscal 2017 outlook indicates significant cost pressures, which might hurt margins and earnings.

However, Dillard’s niche position among fashion apparel, cosmetics and home furnishing retailers cannot be ignored. Driven by efforts to uphold growth at the brick-and- mortar stores, the company is likely to gain from better brand relations, focus on in-trend categories, store remodels and rewarding store personnel.

Alongside, the company focuses on enhancing merchandise assortments and effective inventory management to boost growth across the eCommerce business. We expect both the top line and bottom line to gain not only from increasing productivity at the existing stores, but also by developing a leading omni-channel platform and enhancing domestic operations in the years ahead.

Bottom Line

Dillard's focus on increasing productivity, enhancement of domestic operations and growth strategies, along with shareholder-friendly moves can go long way in mitigating the effects of soft traffic at stores. Nonetheless, the impact of the aforementioned constrains on the company’s performance and the bleak outlook raise questions on the near-term performance .

Therefore, we would like to see more pronounced effects of the company’s initiatives on performance before becoming favorable about the stock.

Key Picks

Meanwhile, investors may consider better-ranked stocks in the broader Retail-Wholesale sector including Big 5 Sporting Goods Corp. BGFV, The Children’s Place Inc. PLCE, both sporting a Zacks Rank #1 (Strong Buy) and Foot Locker Inc. FL, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Big 5 Sporting, with a long-term earnings growth rate of 12%, has surged 41.7% in the last one year.

Children’s Place has gained 8.5% year to date. Moreover, it has a long-term earnings growth rate of 8%.

Foot Locker has jumped 21.5% in the past one year. The stock has a long-term earnings growth rate of 9.7%.

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Foot Locker, Inc. (FL): Free Stock Analysis Report
 
Children's Place, Inc. (The) (PLCE): Free Stock Analysis Report
 
Big 5 Sporting Goods Corporation (BGFV): Free Stock Analysis Report
 
Dillard's, Inc. (DDS): Free Stock Analysis Report
 
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