Dillards (DDS, Financial) is a clothing retailer that also sells cosmetics, fashion accessories and home furnishings. It operates 297 stores in 29 states, primarily in the Southwest, Southeast, and Midwest regions of the United States along with an online store. The stock has recently fallen 36% from its high of $141/share to the current price of $90/share.
The target demographic is women as the breakout of net sales shows below. You can also see that the product sales mix has been extremely stable for the last three years.
Over the last five years, revenue has slowly crept up from $6.23 billion in FY2010 to $6.78 billion in FY2015.
Net income has ranged from $69 million to $464 million during the last five years. Net income peaked in FY2012 because of a tax refund. In the last two years, earnings fell because of a 35% tax rate and not because of operational issues.
Comparisons to peers
Dillards sells items at a higher price point than Target (TGT, Financial) or JCPenney (JCP, Financial) so Macy’s (M, Financial) and Nordstrom (JWN, Financial) are direct competitors. In the metrics below, Dillards beats Macy’s and Nordstrom in every category. What I like about Dillards when it comes to the financial metrics is that there wasn't a huge jump in revenue or earnings last year. That's something that can often happen in value traps. A stock may look cheap on a trailing PE ratio because the preceding year had a tailwind or some unusual item that caused profitability to spike and then the next year, earnings revert to the mean. I would point to Coach (COH, Financial) as an example. In 2014, COH had a PE of 12 and then the next year earnings fell dramatically and the PE shot up to 24. In the case of Dillards, don't expect a precipitous fall in earnings next year.
| Trailing Twelve Month Metric | Dillards (DDS, Financial) | Macy’s (M, Financial) | Nordstrom’s (JWN, Financial) |
| PE ratio | 11.44 | 13.15 | 19.48 |
| EV / EBIT | 7.45 | 9.24 | 12.78 |
| Price to Book | 1.78 | 3.65 | 5.59 |
| Current Ratio | 2.15 | 1.49 | 1.57 |
| Debt to Equity | 0.43 | 1.50 | 1.26 |
| 12 Month EBIT Growth % | 7.6% | 3% | -2.8% |
Risks
The retail segment has experienced a tremendous shift in consumer preferences as shoppers have spent more money on electronics, digital and food purchases. In addition, retailers like Dillards and Macy’s have also had increasing competition from fast fashion stores like Forever 21 and H&M in addition to discount retailers like TJ Maxx. For the current year Dillards is only planning on opening three stores so investors should not expect much growth.
Conclusion
The case for Dillards is very straightforward. It’s a solid stock that has dropped to a price where it’s worth putting on the watchlist. Several gurus such as Joel Greenblatt, Jim Simons, Robert Olstein, and David Einhorn have purchased Dillards at prices higher than the current price. Management has also returned money to shareholders in the form of stock buybacks as shares outstanding have decreased from 85 million to 41.19 million in the last 15 years. As of Aug. 1, $292.1 million remained under the company’s stock repurchase plan.
