Will High Expectations Knock Dillard’s, Inc. (DDS) Off-Course?

Department store operator Dillard’s, Inc. (NYSE:DDS) has made a major comeback since the Great Recession. The company’s EPS and share price have both hit all-time highs recently; indeed, Dillard’s Friday closing price of $87.68 represented a new all-time high after adjusting for a recent special dividend.

Dillard’s 5-Year EPS and Share Price Chart, data by YCharts.

Analysts have high expectations for Dillard’s over the next year, but recent market and industry trends could make it difficult for the company to meet these expectations. Since Dillard’s no longer provides monthly sales updates, investors need to “read between the lines” to understand where sales and earnings are likely headed in the future.

Near-term sales growth could disappoint
Analysts currently expect fourth-quarter sales growth of 8.6% at Dillard’s. This figure is boosted somewhat by the existence of an extra week in the current fiscal year. On a comparable-store sales basis (which excludes the extra week, as well as the impact of store closings), this translates to growth of approximately 5.5% to 6%. This is slightly better than the 5% comparable-store sales growth Dillard’s recorded in the third quarter.

This projection seems overly aggressive. The retail sector as a whole saw very slow growth this past holiday season, with luxury retailers faring the best. The primary culprit seems to have been consumer uncertainty about the looming fiscal cliff. Macy’s, Inc. (NYSE:M), which is Dillard’s closest competitor, saw a fourth-quarter comparable-store sales increase of 3.9%. Kohl’s Corporation (NYSE:KSS), which is somewhat down-market from Dillard’s, reported a comparable-store sales gain of just 1.9% for the quarter, while Nordstrom, Inc. (NYSE:JWN) (a more upscale chain) reported a 6.3% increase. The performance of these competitors suggests that Dillard’s is likely to see comparable-store sales growth of only 4%.

2013 could be tough
Moreover, Dillard’s could have trouble repeating its 2012 successes in 2013. Dillard’s, along with many other department stores, benefited from upheaval at competitor J.C. Penney Company, Inc. (NYSE:JCP) over the past year. Analysts estimate that when all is said and done, J.C. Penney will have lost $4 billion of sales in the just-ended fiscal year 2012. All of J.C. Penney’s competitors (including Dillard’s) have benefited to some extent from Penney’s woes.