Shares of department store chain Dillard's Inc. (DDS, Financial) shot up over 15% in premarket trading on Monday after Ted Weschler, one of Berkshire Hathaway's (BRK.A, Financial)(BRK.B, Financial) two investing lieutenants, revealed a 5.89% personal stake on Oct. 9.
Weschler, along with fellow portfolio manager Todd Combs, embraces Warren Buffett (Trades, Portfolio)'s long-term strategy of investing in companies that have understandable business models, favorable long-term prospects and competent management teams that are available at attractive prices. In recent years, the duo have been responsible for steering Berkshire into some winning bets in the technology sector, establishing positions in Apple Inc. (AAPL, Financial) and the newly public Snowflake Inc. (SNOW, Financial), among others. Weschler joined the Omaha, Nebraska-based insurance conglomerate in 2012.
According to Friday's filing with the Securities and Exchange Commission, Weschler invested in approximately 1.08 million shares of the Little Rock, Arkansas-based company, surpassing the 5% threshold on Sept. 29. The filing noted the shares will be held in a trust on behalf of Weschler's family.
Dillard's has a $1.13 billion market cap; its shares were trading around $50.33 on Monday with a price-book ratio of 0.83 and a price-sales ratio of 0.24. Like most retailers, the stock has tumbled roughly 25% year to date amid lackluster sales performance due to store closures related to the Covid-19 pandemic.
The GF Value Line shows the stock is currently modestly undervalued, an assessment which the GuruFocus valuation rank of 8 out of 10 supports.
On Aug. 13, Dillard's reported its second-quarter results. The company posted a loss of 37 cents per share, which was an improvement from the prior-year quarter and topped analysts' estimates as a result of inventory and cost control measures. Revenue, however, declined 35% from a year ago to $945 million and missed expectations of $1.01 billion.
The company did not provide comparable store sales data due to the temporary closure of its brick-and-mortar stores during the period. All of its stores, except for one, had been reopened as of June 2 and are operating under reduced hours.
In a statement, CEO William T. Dillard II praised the company's employees "for their outstanding service" to customers during the pandemic.
"During the quarter, we worked hard to control inventory and expenses," he said. "These measures allowed us to improve gross margin and substantially narrow the loss from the prior year second quarter. We will maintain this conservative financial approach as we move forward."
GuruFocus rated Dillard's financial strength 5 out of 10. While the cash-to-debt ratio of 0.1 is underperforming both its competitors and in comparison to its own history, the Altman Z-Score of 4.13 indicates the company is in good standing.
The department store's profitability scored a 7 out of 10 rating despite having negative margins and returns that underperform a majority of industry peers. Dillard's also has a moderate Piotroski F-Score of 4, indicating that operations are stable, but the predictability rank of one out of five stars is on watch as a result of declining revenue per share over the past 12 months. According to GuruFocus, companies with this rank return, on average, 1.1% annually over a 10-year period.
Other gurus who also saw value in the stock as of the end of the second quarter included Pioneer Investments (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Hotchkis & Wiley, Paul Tudor Jones (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Barrow, Hanley, Mewhinney & Strauss.
Disclosure: No positions.
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