Here’s Why Longleaf Partners Sold Dillard’s Inc. (DDS)

Longleaf Partners Small-Cap Fund, an independent investment management firm, published its fourth quarter 2020  investor letter – a copy of which can be downloaded here. A return of 17.56% was recorded by the fund in the fourth quarter of 2020, below its Russell 2000 benchmark that delivered a 31.37% return in the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Longleaf Partners Small-Cap Fund, in their Q4 2020 investor letter, mentioned Dillard’s, Inc. (NYSE: DDS) and emphasized their views on the company. Dillard’s, Inc. is a Little Rock, Arkansas-based department store company that currently has a $2.07 billion market capitalization. Since the beginning of the year, DDS delivered a 49.55% return, impressively extending its 12-month gains to 135.61%. As of March 26, 2021, the stock closed at $94.29 per share.

Here is what Longleaf Partners Small-Cap Fund has to say about Dillard’s, Inc. in their Q4 2020 investor letter:

“Dillard’s (-48%, -2.80%; –, –), the department store, detracted for the year. We had successfully owned the company during a downturn before and felt that we were paying a low mid-single-digit multiple on stable FCF with a great management team in charge when we first initiated the position in 2019. Our case was supported by the potential for management to monetize part of the company’s valuable owned retail real estate footprint for higher and better uses. COVID lockdowns, however, permanently impaired these values, as well as the company’s ability to go on offense with share buybacks, despite great efforts during the crisis by CEO Bill Dillard. We sold our position in the second quarter as the price-to-value gap closed and our case had changed materially.”

Our calculations show that Dillard’s, Inc. (NYSE: DDS) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Dillard’s, Inc. was in 15 hedge fund portfolios, compared to 14 funds in the third quarter. DDS delivered a 64.81% return in the past 3 months.