Updated Research Report on Dillard's - Analyst Blog

On Jun 9, 2014, we issued an updated research report on one of the leading fashion apparel, cosmetics and home furnishings retailers, Dillard's Inc. DDS following the company's better-than-expected first-quarter fiscal 2014 bottom-line results.

Dillard's started fiscal 2014 on a strong note, wherein adjusted earnings of $2.56 per share for the first quarter increased 6.2% year over year and were above the Zacks Consensus Estimate of $2.38 per share. The company's results benefited from the successful execution of its long-term growth strategies and the strength of its distinguished and varied assortments.

With a positive earnings surprise of 7.1% in the first quarter, the company surpassed the Zacks Consensus Estimate thrice in the trailing 4 quarters. The average earnings surprise for the past 4 quarters is approximately 8%. We expect the company to keep up the positive earnings trend in the years ahead, based on its focus on increasing productivity at the existing stores, developing a unique omni-channel platform and enhancing its domestic presence.

Moreover, we believe that the company's strategy of offering fashion-forward and trendy products has attracted more customers to its stores, as evident from positive comparable store sales (comps) performance in the trailing 14 quarters. Improved comps performance and enhanced e-Commerce capabilities have helped Dillard's post sales growth over the last several quarters.

Other positive traits rooted in the stock include the company's efforts to capitalize on growth opportunities in its brick and mortar stores and e-Commerce business, with a target to retain existing customers and attract new customers. Initiatives to boost sales of physical stores include better branding, focusing on in-trend categories, store remodeling and rewarding store personnel, while its online strategies are focused on enhancing merchandise assortments and effective inventory management.

Despite the aforementioned positive factors, we remain slightly apprehensive about the stock's growth prospect due to the prevailing macroeconomic headwinds and intense competition. Moreover, from valuation perspective, the stock looks quite expensive as it trades at a premium to the industry average, based on forward earnings estimates thereby limiting its upside potential.

Other Stocks to Consider

Currently, Dillard's carries a Zacks Rank #2 (Buy). Some other stocks in the retail space worth considering include American Apparel, Inc. APP, Foot Locker, Inc. FL and Zumiez Inc. ZUMZ. All of these stocks have a Zacks Rank #2 (Buy).