Dillard’s, Inc. (DDS), J.C. Penney Company, Inc. (JCP): This Department Store Is Doing It Right

Department stores are at the epicenter of a sea change in the retail landscape. As technology-fueled shopping trends continue to adapt at a ferocious clip, traditional brick-and-mortar stores have been forced to either make quick business-plan changes, or perish. We have certainly seen examples of both. In this latest earnings season, though, department stores largely surpassed Wall Street analyst expectations. One of the strongest outperformers is one of the sleepier, smaller chains — Dillard’s, Inc. (NYSE:DDS). The company has strong growth on the horizon and trades at a discount to some of its peers. Here’s what you need to know for this quiet retail outperformer.

Bucking the trend
Starting last year, Dillard’s, Inc. (NYSE:DDS) began a conversion to anti-Street-friendly actions — it stopped reporting monthly comparable sales figures, and it no longer provides a quarterly conference call to investors and analysts. While some may find these moves as not being shareholder-friendly, I welcome the defiant behavior. Mr. Market seems to be OK with it as well, as the stock climbed more than 27% in the past 12 months. So how is this company outperforming its sector (and the market at large) while not feeding in to the typical market nonsense? By letting the numbers speak for themselves.

The Little Rock, Ark.-based company had a stellar fourth quarter. Some of the highlights include a 30% bump in earnings per share from the year-ago quarter to an adjusted $2.87 per share. GAAP earnings per share came in at $3.36. The GAAP number includes three one-timers — a $0.14-per-share after-tax gain related to a real estate sale, a $0.02-per-share store-closing charge, and a $0.38-per-share one-time tax benefit. Still, the adjusted-for-one-timers number is a record fourth quarter for the company. Comparable sales for the quarter were up 3%, marking the 10th consecutive quarter of comparable sales growth. Gross margins grew by 40 basis points, helping bring cash flow for the quarter to $522.7 million from just over $501 million in the year-ago quarter. That led the company to declare a special $5.00-per-share dividend.

On an annual basis, things looked even better. Adjusted earnings came in at $6.32 per share, a 50% premium to 2011’s number and a company record. Net sales came in at $6.593 billion, up from $6.264 billion the year before.

Throughout the year, the company bought back 2.8 million shares at an average price of $65.82. While Warren Buffett typically warns of share buybacks at too high a price, this buyback appears to have enhanced shareholder value. Dillard’s has an additional $92 million repurchase allotment remaining.

Dillard’s, Inc. (NYSE:DDS) currently has 302 department and closeout stores. In the first quarter of this year, the company has closed a 94,000-square-foot store in Utah as part of its consolidation effort.

Clearly, the company was able to shine even in a tepid retail environment, where many specialty stores struggled. Department stores in general remain an endangered species, with companies such as J.C. Penney Company, Inc. (NYSE:JCP) knee-deep in a transformation in an effort to stay alive. What makes Dillard’s a winning store?