Leading fashion apparel, cosmetics and home furnishings retailer, Dillard's Inc. (DDS) reported lower-than-anticipated fourth-quarter fiscal 2014 results, wherein adjusted earnings of $3.15 per share fell short of the Zacks Consensus Estimate of $3.20. However, adjusted earnings marked a year-over-year improvement of nearly 16.2%.
Though earnings in the quarter fell short of estimates, the company’s shares gained nearly 1.4% in the after-hours trading session yesterday.
Dillard's net sales (including CDI Contractors LLC or CDI) jumped nearly 5% year over year to $2,135.5 million in the quarter. Merchandise sales, excluding CDI, grew 2.7% to $2,068 million from $2,013 million reported in the year-ago quarter.
The improvement in merchandise sales came on the back positive response from customers to the company’s improved mix and service during the holiday season, which also helped boost retail gross margins.
The company’s total revenue (including service charges and other income) of $2,179.6 million reflected an increase of 4.9% from the year-ago quarter revenue of $2,078.7 million and also surpassed the Zacks Consensus Estimate of $2,113 million.
Merchandise comparable-store sales (comps) for the thirteen-week period ended Jan 31, 2015 increased 3% from the thirteen-week period ended Feb 1, 2014.
During the quarter, the outperforming categories were ladies' apparel and shoes. This was followed by strong performance at the juniors' and children's apparel. However, the home and furniture category recorded the lowest sales in the quarter. The best performing region was Central, followed by the Eastern and Western regions, respectively.
In the quarter, consolidated gross margin improved 30 basis points (bps) to 34.3% while gross margin from retail operations (excluding CDI) expanded 103 bps. The year-over-year improvement in retail gross margin was primarily due to lower markdowns.
Dillard's selling, general and administrative (SG&A) expenses for the quarter increased nearly 4.2% to $457.5 million, while as a percentage of sales it contracted 20 bps to 21.4%. On the other hand, operating expenses from retail operations, as a percentage of sales, expanded 40 bps to 22.1%, primarily due to higher selling payroll, insurance and supplies expense, offset by lower advertising cost.
Fiscal 2014 Synopsis
For fiscal 2014, the company’s adjusted earnings came in at $7.70 per share, which increased 10.2% from fiscal 2013 but fell short of the Zacks Consensus Estimate $7.72. Total Revenue for the year rose about 1.3% to $6,780.2 million. The company’s top line also surpassed the Zacks Consensus Estimate of $6,713 million.
Other Financial Details
Dillard’s ended the year with cash and cash equivalents of $403.8 million compared with $237.1 million at the end of fiscal 2013. As of Jan 31, 2015, the company’s long-term debt and capital leases was $620.7 million compared with $621.5 million as of Feb 1, 2014.
In fiscal 2014, the company generated net cash flow from operations of $611.6 million compared with $501.7 million in the prior-year period.
Furthermore, during fiscal 2014, the company completed its planned share repurchases under the Mar 2013 and Nov 2013 authorizations, buying back about 2.8 million shares for about $290.4 million. As on Jan 1, 2015, the company had $500 million worth of authorization remaining under its share repurchase program that was announced in Nov 2014.
Store Update
During the fourth quarter, the company shut down its store at Southgate Mall in Sarasota, FL. Dillard’s did not open any new store in the quarter. In fiscal 2014, the company opened two namesake stores and closed one store. The newly opened stores are located at The Shops at Summerlin in Las Vegas, NV and The Mall at University Town Center in Sarasota, FL.
As of Jan 31, 2015, Dillard’s had about 277 namesake outlets and 20 clearance centers operating in 29 states and an online store at www.dillards.com. Dillard’s total square footage as of Jan 31, 2015 was 50.5 million.
Fiscal 2015 Outlook
For fiscal 2015, the company projects rentals of approximately $25 million compared with $27 million reported in fiscal 2014. Net interest and debt expenses for the year are expected to be nearly $61 million, flat with fiscal 2014.
Moreover, the company still expects capital expenditure for fiscal 2015 to be about $160 million compared with $152 million in fiscal 2014. Depreciation and amortization expenses for fiscal 2015 are expected to be $250 million compared with $251 million incurred in fiscal 2014.
Other Stocks to Consider
Currently, Dillard’s holds a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include Kohl's Corp. (KSS) and J. C. Penney Company Inc. (JCP), both carrying a Zacks Rank #2 (Buy). Another stock worth considering in the broader retail space is Citi Trends Inc. (CTRN) with a Zacks Rank #1 (Strong Buy).
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