Dillard’s, Inc. (DDS) Flies High in a Troubled Industry

Dillard'sWhile some old-school department stores are doing rain dances and praying to the Lord of Light in attempts to save themselves from pending irrelevance, one Southern-based chain is achieving record results. Flirting with its 52-week high, Dillard’s, Inc. (NYSE:DDS) seems to be making the right moves in a disrupted industry. But what does the latest earnings release show about the future? Can the company continue its attractive earnings growth, or has this story passed? Let’s take a closer look at the results and forward valuations to find out.

The results
For Dillard’s, Inc. (NYSE:DDS), the headline number for the recently ended first quarter was a 27% increase on the bottom line to $2.40 per share, after accounting for a one-time $0.09 benefit. The number comes in at a sharp premium to both the prior year’s number and analyst expectations of $2.12. But EPS was not the only line to celebrate.

Same-store sales crept up just 1%, while cash flow from operations blew up 39%, from $98.5 million to $136.9 million. Revenue hit $1.55 billion for the quarter — almost perfectly flat with 2012′s first quarter and a discount to analyst expectations of $1.62 billion. The top-line miss dipped the stock briefly, but investors and analysts eventually found much more to be excited about than to lament.

Margins improved slightly across the board, with gross margins up 110 basis points and operating margins up 170 basis points. Throughout the first quarter, the company bought back $114.7 million worth of Class A stock.

Where from here?
The stock pushed to new highs last week, and has seemed to stabilize above the $90 mark, giving it a forward P/E of 11.61 times. Now, the company is in much better shape and deserves higher valuation multiples than, say, J.C. Penney Company, Inc. (NYSE:JCP) , which has negative earnings but trades at just 0.32 times sales. But when comparing Dillard’s, Inc. (NYSE:DDS) to other, healthy department chains, such as Kohl’s Corporation (NYSE:KSS), we see a more interesting picture. Kohl’s Corporation (NYSE:KSS) trades at 10.7 times forward earnings, and while it saw lower same-store sales due to bad weather, the company still beat estimates and is set to grow via new stores.

Another strong performer, Target Corporation (NYSE:TGT), trades at 12.73 times forward earnings. Target Corporation (NYSE:TGT) has conducted a successful facelift in recent years — becoming the premium-products-with-value-pricing department store. While there have been some missteps, such as its recent partnership with Neiman Marcus, the store has largely kept its shopper base while reaching out to new, younger consumers.

So Dillard’s, Inc. (NYSE:DDS) current valuation sandwiches it among the leading stores. The company has a sizable $622 million debt load, but overall has a strong balance sheet with $156 million in cash.

One of the early attractive features of Dillard’s, Inc. (NYSE:DDS) before its run-up in stock price was its real estate portfolio — a common thesis for large retail store investing. The company is shutting down poor-performing stores and investing in the remaining square footage. This smart capital management will likely keep the company on solid footing going forward. Also to note is the recent quarter’s segment performance, which shows home and furniture as the worst department. As the housing recovery continues in the U.S., there may be some growth in these areas, especially as the stores are renovated and inventory is updated.

Overall, Dillard’s, Inc. (NYSE:DDS) appears to be valued fairly at neither a considerable discount nor premium to its intrinsic value. Investors encouraged by management’s ability to control costs and use capital may want to take a closer look, but this is no longer a value-oriented story. Still, in an industry subjected to plenty of turmoil in recent years, Dillard’s, Inc. (NYSE:DDS) appears to be an outperformer.

The article Dillard’s Flies High in a Troubled Industry originally appeared on Fool.com and is written by Michael Lewis.

Fool contributor Michael Lewis has no position in any stocks mentioned. The Motley Fool owns shares of Dillard’s.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!